An Overview of Seller Financing in Business Transactions
When selling a business, your business broker La Habra may recommend seller financing. This is more so when the bank rates are unfavorable or if yours will be a hard business to sell. Seller financing makes a business more attractive to buyers. Although seller-financing is an option that solicits negative reaction from sellers, it makes it easier and faster to sell a business. This is why we at So-Cal Business Broker recommend seller financing.
Most of the businesses that sell today include some percentage of seller/owner financing. This is because getting an SBA loan is not easy. 80% of the applicants get rejected. This means SBA loans are not an option for most buyers. Our business brokers La Habra have noted that business listings that advertise seller financing get more inquiries and end up selling for more than 15% their sale price.
Seller financing is basically a loan that is provided by a seller to a buyer. A down payment of at least 40% is made by the buyer and the balance is cleared in 3, 5 or 7 years. We have noticed that most of the buyers we deal with negotiate for seller-financing for three main reasons:
- They can’t afford the full asking price
- The transaction doesn’t qualify for bank loans
- There is some level of uncertainty that the business will not keep on being successful in the absence of the previous owner.
How we protect sellers
Our work when you opt for seller financing is first to advice you on seller financing and second to construct the documents that protect you. Our business broker La Habra will draft a promissory note that illustrates all the agreed details. The details include recourse that you have in case the buyer defaults on the promissory note. Recourse options include taking back the business, using assets of the business as collateral or getting personal guarantees from the buyer. Our team will negotiate the best terms for you.
We also protect you by making sure the seller is highly qualified to participate in seller-financing. While the buyer conducts due diligence our team will be doing the same on the buyer. At a minimum, we request for references and credit records of the buyer. The net worth of the buyer is also considered to ensure he can clear the loan within the set timeframe.
So-Cal Business Brokers is a team of highly trained and experienced business brokers that helps business owners sell their businesses. If you have more questions on seller financing, please visit our website to schedule a complimentary consultation.