500 New & Refreshed Posts, Postings Daily
Over 8,000 Postings & 2,500 Resources
Assisting Buyers & Sellers Over 25 Years!

Down Payment

Tags: deal structures

Comments & Replies: 2     Views:     Post ID:     Comments About This Glossary Term

Contributor: Business Broker, Northern California
A serious buyer will bring a serious down payment so a serous buyer takes their offer seriously. In addition to their down payment they should bring a resume and if they want the seller to carry some sort of finance, a copy of their credit report and credit score.

I always suggest to a serious buyer that before they start looking to buy a business that they check their credit report as often there are errors. There is nothing worse than a buyer finding a wonderful business they wish to buy and then be unable to close the deal because their credit report has an error that makes a seller or lender feel uncomfortable closing a deal.

Like the cash used by a buyer as part of the payment when acquiring a house'with the balance of the purchase price comprised of promissory notes, an individual who is purchasing a business will meet the negotiated price with his or her cash down payment plus money acquired through a loan from the seller and/or a financial institution.

Size of the down payment - which often is expressed as a percentage of the total price, depends entirely on the negotiated agreement of the buyer and seller, as there is no rule dictating an appropriate amount. However, a common figure in real estate transactions is twenty percent of the price. Down payments on business purchases often are higher - a third or more of the final price - because a business buy is usually is considered a riskier investment and any lender is likely to want as much down payment as possible for a deal it will help fund. Lenders feel the larger the buyer's financial stake in an investment - that is the more money put into the deal with the buyer's down payment, the less likely the individual will be to fail at the business or to fail to make payments on any loans needed to complete the purchase.

Financial institutions making business purchase loans often require that the buyer's down payment equals forty or fifty percent of the price before the loan application will be considered. And sellers who are willing to take a promissory note for part of the price, and thereby become a lender for the deal, usually want the buyer to make a commitment of at least thirty percent of the price with his or her cash as the down payment.

The mechanics of the down payment usually take place in the business escrow which concludes the transaction and legally transfers the business to the buyer.

The buyer ordinarily has put cash into the escrow in the form of the earnest money made with the offer. During the escrow procedure, the buyer will give the escrow holder a check for the amount required to add to the earnest money deposit in order to reach the sum required for down payment. That would mean, for example, a $45,000 check delivered at closing if the earnest money deposit was $5,000 and the down payment called for in the sales contract is $50,000.

It is not uncommon for a buyer to take out two loans to purchase a business. In the typical scenario, the seller will carry back part of the purchase price in the form of a promissory note from the buyer, and the rest of the funds needed to complete the down payment - if the total down payment is not coming directly from the buyer's funds, will be supplied by a financial institution that has agreed to provide business purchase financing for the transaction.

Other Related Blog Posts, Articles, And Discussions You May Be Interested In

Harry Sidhu Business Brokerage Services Harry Sidhu Business Broker - California - SF Bay Area, Central Valley, SAC

Assisting both sellers and buyers of businesses - dealing mainly with Liquor Stores, Grocery Markets, Gas Stations, Smoke Shops, Restaurant Related, Retail Related, Service Related. Serving SF Bay Area, North Bay, Sacramento area. Call Harry Sidhu CBB direct for assistance at 510-366-6130 cell/text.
Southern California Performance Company For Sale For Sale: eCommerce Performance Wearables Accessories Company - Southern CA

Well respected brand of wholesale niche accessories for 27 years. Profitable since 1993, with consistent earnings, even during the pandemic. Multiple sales channels include; wholesale, bulk direct and four online offerings. Established classic designs plus, new state-of-the-art, USA made. Training.
Buying Or Starting Up Pop Up Restaurants Pop-Up Restaurants: Pro Tips For Starting Or Buying One: Broker Shares Info

For starters, a pop-up restaurant is a short-lived dining experience in a temporary location, most found in abandoned factories or warehouses, rooftops, barns, or an already existing restaurant location, so basically anywhere done legally and safely. Joe Ranieri, Business Broker shares his tips.
6 Untruths Told To Business Buyers 6 Possible Untruths Told To Business Buyers When Buying A Small Businesss

Even without meaning to be dishonest, sellers or brokers talking to someone who wants to buy a small business often make statements that are not true. And sometimes what is said is known to be a lie. The buyer is smart to carefully evaluate what they hear - six untrue statements sometimes told.
John Willingham Central Valley Broker John Willingham, CBI, CCIM, Business Broker - Kern, Fresno, Tulare Counties

John Willingham, CBI, CCIM, Sunbelt Business Advisors & Brokers of Kern, Fresno, Tulare County is dedicated to providing the best possible venue for bringing buyers & sellers of businesses together. Professional, confidential brokerage services to buyers & sellers. 661-332-9401 Cell/Text.
LA County Montrose Gift Store For Sale Montrose, LA County, CA Toy, Nostalgia, Clothing, Specialty Store For Sale

The most charming and historic shop in the lovely city of Montrose, LA County, CA. Well established business is at the epicenter of the Montrose Shopping District and Community. Specializing in children's boutique clothing, toys, gifts, and nostalgic items. Contact Peggy (Agent) at 626-290-2869 Cell
Buying An Absentee Small Business The Pros And Cons Of Buying An Absentee Run Small Business In California

Peter Siegel, MBA - BizBen Founder discusses the difference between a hands on owner and an absentee owner. It covers why someone would want to be an absentee owner and then goes on to discuss the pros and cons of buying an absentee run small business in the California marketplace.
Keeping A Business Sale Confidential Why Is A Small Business Sale Kept Confidential? Advisors Discuss This Topic

Recently a business owner asked me on the phone, "Why do you keep the sale of a business confidential? How do you keep the sale confidential - any good tips?" Multiple Advisors weigh in on this subject. What would be your answer to this business owner? ProIntermediaries on BizBen discuss this topic.
Disclosures Needed For Business Buyers What Do I Need To Disclose To All Prospective Buyers Of My Small Business?

When selling a small business you always run the risk of a lawsuit. They aren't as common as one may think in this litigious world in which we live in, but whenever there is money exchanging hands & attorneys involved the stage is set for a lawsuit. Various ProIntermediaries share their viewpoints.
Joe Ranieri Business Broker Joe Ranieri, Business Broker: Serving Both Orange, Los Angeles County Areas

Having owned both retail and restaurant businesses for over 20 years, my interest turned to selling businesses rather than owning them. I specialize in Los Angeles & Orange County restaurants, fast food independents and chains, bars, & liquor stores. Call me direct at 714-292-5448 Cell/Text.