How to Purchase a Business with Seller Financing

It is not uncommon for a business broker Orange County to recommend buyer financing. This is the option in which the seller of a business agrees to give the buyer a loan that enables the buyer to easily purchase the business. This is not essentially a loan but rather an option that allows a buyer to pay a down payment and settle the remaining balance over a period of time. When done correctly, seller financing benefits both the buyer and the seller. But should you consider it?

When does it make sense?
Securing a loan that is needed to buy a business can be hard more so when the buyer has a bad credit or lacks a good security. In this case, the seller of the business can agree to favorable terms where he allows the buyer to pay for the business over an agreed period of time. To benefit, the seller can either impose a higher interest rate or set the price of the business a bit higher. Business brokers Orange County recommend this option because it enables a buyer to get financing easily and allows the seller to sell fast and make profit.

What the seller expects
Apart from cashing out, the seller wants to be sure that their business will be in the right hands. As a result, they are very picky on the buyer they sell to. A seller will want a buyer who has significant experience in the industry, a buyer with a solid business plan, and a buyer with great working capital and roots in the community. The seller knows that if the business fails before the buyer clears the payments the seller will incur a loss. The interests of the seller are thus tied to the success of the business.

Business sellers treat the loans as seriously as the banks do. They will require a credit check, ask for collateral and also request for life insurance. This is very important when you consider that the loan terms can extend for 10 years.

How to vet the deal
As a buyer, it is not enough for you to grill the business owner. You need to scour the financials right from bank statements to cash flow and tax returns. You also need to inspect the business to make sure all the inventory, equipment as well as assets are well accounted for. The best thing is that a good business broker Orange County can help with this.

What to negotiate
Buyers can negotiate the terms given by the seller. Typically, a seller will lend you between 5 and 15 percent of the selling price. This does not, however, mean that you cannot get 90% seller financing. You can also negotiate the terms on loan repayments and interest rates.

Business broker Orange County