What You Should Understand About Seller Financing in a Business Sale
If you have done your research on commercial business sales Carlsbad, you probably have come across the term owner or seller financing. This is one of the many financing options available when purchasing a business. At So-Cal Business Brokers we can help with seller financing whether you are selling or buying a business.
What is seller financing?
Just like the phrase implies, this is the process in which the business buyer finances the purchase directly through the entity or person that is selling the business. The beauty of this option is that the buyer doesn’t have to go through the traditional bank or other lenders. We advocate for this option because it benefits both the buyer and the seller. There are, however, some drawbacks we warn our clients about.
How does it work?
We recommend owner-financing in commercial business sales Carlsbad mainly because the option puts both the buyer and the seller in the driver’s seat. There is no middleman to get in the way. However, if the two parties are unfamiliar with one another, it is good to involve a middleman such as a bank or an online lender. We only recommend seller financing where the buyer and the owner are comfortable with the option. We will make sure that seller financing is done properly so that it pays huge financial dividends for both parties.
Benefits to the buyer
One of the ways the buyer benefits is when he failed to secure a loan from online lenders or banks due to the lack of collateral or limited credit history. The person that Okays the loan here is the seller provided they are satisfied with the assets and credit scores of the buyer.
In our experience, closing is both cheaper and faster with seller financing. The buyer never deals with administration, origination or processing fees as is the case when working with a lender. The closing costs are reduced and since there is no waiting on financing the buyer obtains the business faster.
The third benefit is that the financial details are very negotiable. At So-Cal Business Brokers, we will help with the negotiations and help you get a fair repayment schedule.
Benefits to the seller
The main advantage to the seller is that he can demand a higher sales price or impose an interest rate. The seller also benefits from the tax breaks. He will pay less in taxes with the installment sale since a seller is only required to report the income received in a year.
Another benefit is that the seller will get monthly income from the buyer. The interest rates will also be higher than other investments. It is also good to note that with owner financing, it becomes easier for the seller to sell the business ‘as is’. He doesn’t need to make any major improvements.
On the part of the buyer, the seller may ask for a high interest rate or a huge down payment. Sellers, on the other hand, will be tied to the business for more time than they would want. The seller will also need to ensure that the business is doing well. If the buyer fails, the seller can lose the interest income and will have to spend resources collecting on the debt.
Is this an option you would be interested in? Give us a call now to learn more. We serve clients in the entire San Diego County.