Seller Financing: A Deal Closer
When selling a business, you want every edge possible. One winning option that a business seller can offer a prospective buyer is seller financing.
What Is Seller Financing?
Seller financing, or owner financing, is an option in which the seller of a business provides financing to the buyer to facilitate the company’s purchase. Instead of the business buyer trying to secure a traditional bank loan, the buyer makes the scheduled payments directly to the seller.
Eric Wayne, an experienced, trusted, effective seller advocate, has helped multiple businesses close a business sale by offering and implementing seller-side financing.
Here’s how seller financing typically works:
- Negotiation of Terms: The buyer and seller agree on the terms of the sale, including the purchase price, interest rate (if any), repayment schedule, and other relevant terms. A skilled business broker can help determine and set these terms and complete the necessary paperwork and documentation.
- Down Payment: The buyer may provide a down payment to the seller, which could be a percentage of the purchase price. A downpayment shows the buyer’s commitment to the deal plus reduces the outstanding balance that needs to be financed.
- Promissory Note or Loan Agreement: A promissory note or loan agreement is drafted, outlining the terms and conditions of the seller financing arrangement. This document includes the loan amount, interest rate, repayment schedule, default consequences, and required collateral or guarantees.
- Closing the Deal: The business sale is completed, and the buyer takes ownership. At this point, the seller-financed amount becomes a debt owed by the buyer to the seller.
- Repayment Schedule: The buyer makes periodic, scheduled payments (monthly, quarterly, etc.). These payments cover both the principal amount borrowed and any accrued interest.
- Securing the Loan: In some situations, the seller may reserve the loan with the business’s assets or other collateral to mitigate the risk of default by the buyer.
- Transfer of Ownership: While the seller retains a financial interest in the business until the debt is fully repaid, the buyer assumes operational control and ownership rights.
Seller & Buyer Benefits
Benefits for the Seller:
- It may attract more motivated potential buyers who need help to secure traditional financing.
- It generates a stream of income through interest payments.
- Allows the seller to spread the tax liability over the term of the payments.
Benefits for the Buyer:
- Eases the burden of obtaining financing from a bank or lender, mainly if the buyer has a limited credit history or collateral.
- Shows the seller’s confidence in the business’s viability, potentially fostering a smoother transition.
- It could offer more flexible terms compared to traditional loans.
Let me help you sell your business faster for more money and low fees.
I am offering a FREE customized video tutorial and business analysis to help you understand all the factors determining your valuation, listing, negotiations, closing, and more. Call me today at (952) 562-2019.
