Share This Info:  

If You Plan To Offer Seller Financing: 3 Things You Need to Know


Seller Financing When Selling A Business

When selling your small business, offering seller financing is a great way to help your business standout from others on the market and it is also a good strategy to consider that can help you close a sale.

If you plan to offer seller financing as a part of your purchase agreement, there are a number of things you need to know so that you can structure an agreement that works for both you and the buyer.




What is seller financing?


To start, let's define exactly what seller financing is.  Seller financing is when the seller of a small business provides financing to the buyer for a portion of the sale price.  In most cases, the seller will only offer financing for a part of the sale price and then the buyer needs to secure funding to finance the balance.

Why has seller financing become popular?

It is no secret that business purchase financing has changed since the recession.  Prior to the recession lenders were handing out credit like it was candy!  Lenders are being more selective about whom they give money to in an effort to avoid the pitfalls we experienced during our most recent economic meltdown.  With lenders tightening up their lending criteria; buyers have had to become creative about how they fund the purchase price of a business deal.  Most sellers are aware of the challenges that a buyer can face when working to obtain financing so as a result small business owners started offering seller financing to help ensure their company sells.

In addition to seller financing being attractive to buyers, it also helps buyers when they go to lenders to get financing for the remainder of the purchase price.  When a seller offers financing it shows the bank or lender that they have confidence in the new owner's ability to run the company.  And since the seller is willing to finance a portion of the sale price, the lender is risking a smaller amount.

Today, many business deals include some variation of seller financing.  It is estimated that 60 to 90 percent of sales that closed so far in 2014 included seller financing terms.  If you are considering offering seller financing, here are 3 things you need to know to make it work for you and your business.

1. The terms need to work for both parties

While offering seller financing can certainly make your company more attractive to buyers, keep in mind buyers are buying a business to make money for themselves.  With that said, as you think through the details of your agreement make sure that the terms work for both you and the buyer.  Some experts say that offering seller financing can actually command a higher asking price.  While I have seen that be the case, I would suggest you view seller financing as a means of closing the sale, not getting a higher price and write your terms accordingly.

In most of the seller financing deals I have been a part of the owner usually finances about 60 to 70 percent of the sale price.  The repayment term is usually about 5 to 7 years at a rate of 6 to 10 percent interest.  Of course terms and conditions should vary based on your business but these figures are typical. 

2. Make sure you protect yourself

If you decide to offer the buyer financing you are essentially functioning as a lender.  Lenders take steps to ensure their money is repaid to them and you should do the same.  If the buyer cannot repay your loan within the terms you agree to, you should have specific repercussions built into your purchase agreement.  It is common for sellers to put into their terms that if a buyer cannot pay the loan back that the seller will regain control of the business, use the business's real estate as collateral or ask for a personal guarantee from the buyer on the loan.

3. Get an Attorney involved

Your sale terms and purchase agreement need to be put in writing by a professional attorney.  Regardless of whether or not you are working with a business broker, you want to have an attorney involved in this aspect of your sale to make sure that you are covered should any part of your seller financing agreement fall apart.  You also want to make sure that your purchase agreement is clear and written in language that will hold up in court should it ever come to that.

Peter Siegel, MBAAbout The Author: Peter Siegel, MBA is the Founder and Administrator of BizBen.com (established over 25 years!) and is a Business Purchase Financing expert (SBA and Non-SBA financing). He consults daily with California business buyers, owner/sellers, business brokers, and agents regarding buying and selling California small businesses. Call him today regarding getting advise on finding, buying, selling, financing a business purchase/getting pre-qualified (ask about the BizBen ProBuy and ProSell Programs for business buyers and owner/sellers, and brokers).


Categories: BizBen Blog Contributor, Business Purchase Financing, Buying A Business, Deal And Escrow Issues, How To Buy A Business, How To Sell A Business, Selling A Business, Small Business Financing


Comments Regarding This Blog Post


Peter's third point is crucial. While I always advise sellers that they should have an attorney review their contract of sale, many understandably think that they are getting rid of liabilities and risks, and that it is only the buyer who needs a lawyer.

However, when the seller is providing financing to the buyer--either primarily or secondarily, the seller has become a "bank" and needs to be satisfied with the buyer's credits, collateral resources, and ability to service the debt. And the seller needs to have adequate protection to recoup losses in the event the buyer defaults. An experienced business transaction lawyer is critical and essential.


  Helpful Resources To Assist In Selling And Buying California Businesses
Diane Boudreau-Tschetter: Escrow And Bulk Sale Services - California

California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.

Janet Carrera: Escrow & Bulk Sale Services - San Francisco Bay Area

Redwood Escrow Services, Inc. is a full service, licensed independent escrow company. We are EAFC Fidelity bonded, fully insured & licensed with the Department of Corporations. Committed to offering our clients the most comprehensive variety of escrow services available. Phone Janet at 510-247-0741.

Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services - California

Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 805-428-2063.

Elizabeth McGovern: Escrow Services - San Francisco Bay Area

McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.

Brad Steinberg, Broker - Laundromat Specialists

PWS is the leading laundromat broker in California. Since 1968 PWS has brokered over 2,500 laundromat sales. With over 90 employees dedicated to the coin laundry industry, PWS has 18 licensed agents, a 3 person in-house finance department, 10 service technicians and a 20 person parts department.

Shalonda Chappel-Pilgram: Escrow & Bulk Sale Services - Southern California

Escrow services to brokers/agents, sellers, & buyers. Established 43 years. Extraordinary service. Experienced with handling difficult transactions. One stop for all your escrow needs: Bulk sales, lien searches, UCC searches, liquor license transfers, publishing & recording services. 951-808-3972.

Helen Yoo, New Century Escrow - Escrow Services In Southern California

New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.

Joe Sandbank, Esq: Legal Services For Buyers, Sellers, Brokers - Throughout California

I have provided legal counsel to business buyers, sellers and brokers for over 17 years. With prior experience as a business broker and SBA loan officer, Joe brings both a practical and legal approach to all aspects of the business acquisition process. Please phone 916-672-8018 for more info.


  Related Articles, Events, Blog Posts, Discussions, Videos, Interviews
Absentee Run Businesses - A Myth Or Reality When Buying A Small CA Business?

Some buyers search for an absentee business to own, wanting to collect profits generated by a successful enterprise without having to stand at the sales counter or cash register, without having to cook, operate equipment or talk to customers. Here's some insight about finding such a business.

Buyer Beware: Does A Company's Culture Effect The Sale Of A Small Business?

When purchasing a small to mid-szied CA business, there are a many items to evaluate. One area that is often overlooked is the business's office culture. Peter Siegel, MBA with BizBen discusses with business buyers the importance of understanding how the business "feels" on a day-to-day basis.

Financing Advice: Showing Add Backs To Get Business Acquisition Financing

When seeking business acquisition financing, it helps to review a seller's addbacks as a source of funding to service the debt service. But explain them correctly. Peter Siegel, MBA business acquisition financing expert and advisor at 925-785-3118 covers this topic on financing a business purchase.

How Do I Navigate Through The Negotiation Process When Buying A Business?

Negotiating the terms of a business deal is a delicate process, where one wrong move can cost you the business that you wanted to purchase. Peter Siegel, MBA (BizBen ProBuy Program) discusses the ins and outs of negotiations, and how to work well with the seller to get a deal done.

What Should I Do If Other Buyers Are Trying To Buy The Same Business As Me?

Buying a small business is hard enough when there is no competition, so how might a buyer navigate the process when there is additional competition from other buyers? Potential small business buyers are offered a few key ways that a buyer can beat out other potential business buyers in this article.

Find Out Why 80% Of California Business Buyers Never Find And Buy A Business

First the dreaded statistic: 80% of all California business buyers looking to buy a small to mid-sized business in California never end up doing so! Peter Siegel, MBA BizBen Founder And Director at 925-785-3118 covers successful tactics all business buyers of small businesses should utilize.

Absentee Run Small Businesses - Is That Really A Possibility For Buyers?

Is buying a absentee run small business really a possibility? Peter Siegel (BizBen ProBuy Director) gets asked this question a lot in his consulting sessions with business buyers. Read more about what other Advisors and Intermediaries feel about this topic on this popular BizBen Discussion!

Uncover Hidden Problems In Due Diligence When You Buy A Small Business

Most everyone who's decided to buy a small business in California knows the importance of due diligence. That involves close examination of a business prior to removing contingencies. But not everyone knows how to uncover problems that are not obvious. Here are five of the most common hidden issues.

See All News, Tips And Events


Chris Lazurik Business Broker
Restaurant For Sale Mono County
Michael Brewer, ABC License Consultant
Veld Group Business Brokerage Los Angeles County
Facebook
Twitter
Linkedin
Google Plus You Tube
Vlogs and Podcasts


Auto Related
Business Services
Children Related
Communication Related
Computer, Internet Related
Construction Related
Entertainment Related
Financial Services
Health, Beauty Related
Home Improvement Related
Maintenance Related
Manufacturing Related
Media, Publishing Related
Pet Related
Photography/Video Related
Real Estate Services
Restaurant, Food Related
Retail Related
Service Related
Sports Related
Transportation Related
Travel Related
Wholesale Related

Auto Body Shops
Auto Repair Shops
Bakeries
Bars, Sports Bars
Cafe Restaurants
Car Washes
Cleaning Services
Clothing, Apparel Stores
Coffee Shops
Convenience Stores
Deli Restaurants
Discount, Dollar Stores
Dry Cleaners
eCommerce Websites
Fast Food Restaurants
Florists, Flower Shops
Full Service Restaurants
Gas Stations
Gift Shops
Gyms, Fitness Facilities
Home Health Agencies
Hotels/Motels
Ice Cream Shops
Juice, Smoothie Shops
Laundromats
Liquor Stores
Markets, Marts
Nightclubs
Pizza Restaurants
Postal, Shipping Stores
Preschools, Day Care
Print Shops
Salons, Beauty Shops
Sandwich Shops
Smog Test Only Shops
Smoke Shops
Spas, Med Spas
Sushi Restaurants
Tire Shops
Towing Services
Vending Routes
Wireless, Cellular Shops
Yogurt Shops

Alameda
Alpine
Amador
Butte
Calaveras
Colusa
Contra Costa
Del Norte
El Dorado
Fresno
Glenn
Humboldt
Imperial
Inyo
Kern
Kings
Lake
Lassen
Los Angeles
Madera
Marin
Mariposa
Mendocino
Merced
Modoc
Mono
Monterey
Napa
Nevada
Orange
Placer
Plumas
Riverside
Sacramento
San Benito
San Bernardino
San Diego
San Francisco
San Joaquin
San Luis Obis
San Mateo
Santa Barbara
Santa Clara
Santa Cruz
Shasta
Sierra
Siskiyou
Solano
Sonoma
Stanislaus
Sutter
Tehama
Trinity
Tulare
Tuolumne
Ventura
Yolo
Yuba

0 to $99,999
$100,000 to $249,999
$250,000 to $499,999
$500,000 to $999,999
$1 million to $2 million
over $2 million



BizBen - Where California Deals Get Done! 925-785-3118
7172 Regional Street #364 · Dublin, CA. 94568
BizBen · Copyright © 1994 - 2019, All Rights Reserved

               Vlogs and Podcasts  
Join Us On Social Media - Content Updated Daily
Sign Up Today - For Our FREE BizBen Weekly Email Newsletter
Includes The Best Info On Buying, Selling, Valuing, Financing California Businesses:
Articles, Blog Posts, Podcasts, Videos/Vlogs, Discussions, Q&A, Workshops, Webinars,
Resources. Watch For An Email Confirmation After Signing Up Above. Thank you.
Clost Login


Please confirm your registration by clicking the link we've sent to .

If you can't see it, please check your junk mail folder.

If you have any problems registering, or need assistance with your new BizBen User Account please phone BizBen Customer Support at 888-212-4747.



First Name:*
Last Name:*
Email Address:*
Confirm Email:*
Create Password:*
Confirm Password:*
Phone:
(   
 


You Are A:
Individual
 
Intermediary
 

Email Address:
Password:
 
Search BizBen.com

500 New & Refreshed Detailed Postings Daily
Over 2500 Resources Available On BizBen
Since 1994. Where California Deals Get Done!
If You Plan To Offer Seller Financing: 3 Things Owner Sellers Need to Kn...
Read More News
Find Out Why 80% Of California Business Buyers Never Find And Buy A Busi...
Read More News