Why Seller Financing is Always Good
It's almost always a good idea for a business seller to give a portion of "seller financing" to the buyer of his business.
WHAT IS "SELLER FINANCING"
When a business seller accepts payments for a portion of the business sale, the seller is extending "seller financing" to the buyer, also called a seller's "note" or "carry back". The seller is literally extending a loan to the buyer. (Click here to contact us for FREE help structuring your seller financing.)
Here's why most small business sales should have a portion of seller financing:
ATTRACTS MORE BUYERS
In our experience, businesses that advertise seller financing get 10% to 30% more buyers responding to the ads. The more responses to the ads, the more buyers you find, and the greater the chance of finding the very best buyer. (Take a look. Most of our buyers carry a portion of seller financing.)
HELPS BUYERS QUALIFY FOR THE PURCHASE
Most buyers will assemble their cash for the purchase in financing blocks, pulling cash from several places. If they can count on a portion of their financing coming from the seller, they are closer to qualifying. In some cases banks are more likely to lend on a deal with seller financing.
SHOWS FAITH IN THE BUSINESS
No matter how well a buyer examines a business before she buys it, there's always unknowns. If part of the purchase is seller financed, the buyer can have greater faith in the purchase, because the seller has an incentive to see the buyer succeed owning the business.
LESS RISK FOR THE BUYER
Sometimes during ownership transitions, financial loose ends don't quite get fully wrapped up. Owed sales taxes, insurance claims, or forgotten debts may still remain with the business. If the buyer is left holding the bag, then these liabilities can be paid by the buyer and discounted from the seller financing note, known as "right of offset".
PROVIDES FOR BETTER NEGOTIATIONS
Without seller financing, most times the only item to negotiate on is the purchase price. With seller financing, there are many more ways to strike a deal. The amount of the note, interest rate and terms, and payment terms, all become negotiable items, adding color to the sale.
SELL FOR A HIGHER PRICE
A banker will tell you--Extending loans can be very profitable. Sellers who carry a note are not only selling a business, but selling a loan. It's one of the fastest ways to increasing the value of a business!
Often buyers have enough for a down payment on the business purchase, anticipating they will get a bank loan for the rest. But bank loans can often take months to finalize. If the seller becomes the bank, the deal can be done in a week! If you need to sell fast, offer seller financing.