A non-leveraged ESOP does not involve borrowed funds to acquire the sponsoring employer’s stock. It is funded by contributions of cash or stock directly from the employer sponsor. Learn more in the video.
Non-leveraged ESOP simply refers to an ESOP that does not use debt or leverage or financing to buy stock. Sometimes a non-leveraged ESOP is referred to as a stock bonus plan.
A company can contribute stock and take a deduction for the shares contributed or the company can contribute cash to the ESOP and the ESOP can use that cash to buy shares. Frequently companies will start with a non-leveraged ESOP to get the employee ownership culture and the percentage of the company owned by the ESOP started on a very gradual basis and then proceed to a leveraged ESOP for later transactions.