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As baby boomers begin to hit retirement age, many
who are business owners are ready to sell. It’s created a market that
has many businesses for sale. At the same time, concerns about the economy had
made it tough to get financing for many potential deals. Seller financing is
one option that could be the solution to get many deals done.
Seller financing involves a seller helping to
finance the sale of the business by taking back a second note on the business.
It differs from a traditional Small Business Administration (SBA) loan because
the seller essentially extends credit to the buyer against the purchase price
of the business. However, seller financing is misunderstood by many, even
though it may be the best way to sell a business during a stagnant economy. The
most common option for seller financing involves secured notes, but other
options also exist, including: unsecured notes, assumption of the seller’s
guaranteed credit, assumption of capital leases, a real estate lease,
earn-outs, notes on capital equipment and more.
There are a number of benefits for business
owners who are considering seller financing:
- Faster sale – Seller financing provide an attractive option for buyers which means that sellers can sell their business fast and at a higher price.
- Flexibility – Seller financing enables the seller to create a payment schedule, interest rates and loan period that fit their personal needs.
- Tax breaks – Taking a note for part of the business purchase price may provide a tax break for the seller. The seller can defer some of the tax due on the sale of the business until full payment is received, which could be several years down the road.
- Protections – Asking the new owner to keep the seller up to date with information like monthly profit and loss statements, workforce numbers, order backlog, inventory levels or other items with the monthly payment can be in the sale contract. The additional information allows the seller to keep track of the business and step in to offer advice or help if any problems are detected.
- In First Position to Be Paid: If SBA is not in the picture you are in 1st position if there would be a default. We encourage a personal guarantee from the buyer to ensure you being paid.
Working with a qualified business transaction
professional, like a Certified Business Broker (CBI) or Mergers &
Acquisitions Master Intermediary (M&AMI) is also recommended. Certified
brokers and intermediaries can provide the guidance you’re looking for when
considering seller financing or other financing options. They
will help potential buyers and sellers develop a deal that is fair to both
parties in the acquisition process.
Follow the
link below to learn the ins and outs of selling your business, maximizing your
profits and walking away from the table with a sale tailored to your needs.
Contact us now to schedule a free consultation. I will gladly go over Seller Financing and other inquiries you may have.
Thank you!
Sunbelt Business Brokers, Greater Bay Area | (408) 436-1900 | www.sunbeltbayarea.net | info@sunbeltbayarea.net
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