What You Need to Understand About Seller Financing

When you hire a business broker Orange County, one of the things he might recommend you do is offer seller financing (also known as owner financing). This is the option in which you offer financing to your buyers. The best thing about seller financing is that it lures more buyers in and makes it easy for you to sell. On the flip side, the option will keep you tied to the business until the loan is repaid.

Why seller financing?

As aforementioned, seller financing is a loan provided by the current business owner to the new owner. There are so many reasons why buyers negotiate for seller financing. Here are the three main reasons:

  • A buyer cannot afford to pay the full asking price. In this case the buyer will pay what he can raise, mostly more than 50% of the buying price, and pay the rest in installments. An interest rate is charged.
  • Business transaction cannot qualify for a bank loan. Some transactions don’t qualify for loans. This is mostly because the loan application process has strict requirements. In this case, if the buyer is the best choice, business brokers Orange County will recommend that you offer buyer financing.
  • There is uncertainty that the business will not continue being successful after the transfer of ownership. To win the confidence of a buyer, you may have to offer buyer financing. That way a buyer will know that your interests will still be vested in the success of the business since loan payments are dependent on the success of the business after sale.

It is good to remember that offering seller financing offers a business an edge over other competition. This is because seller financing removes some uncertainties in the mind of the buyer.

Seller protection

While offering seller financing, you need to make sure your finances are protected. One of the ways of doing this is ensuring you work with a professional who will offer advice and construct documents that offer you maximum protection. An experienced business broker Orange County will help with that. Seller protection often includes the signing of legally binding documents that detail recourse if the buyer defaults on payment. Some recourse options include the seller taking back the business or seller taking business assets as collateral.

It is also paramount that the seller performs due diligence on the buyer before agreeing to seller financing. The seller needs to review the credit records as well as references of the buyer. The key is to identify if the buyer will be able to pay the loan.

Always involve an experienced professional when considering seller financing. Business brokers Orange County for example will ensure you get the best terms out of the deal. Don’t assume that because you are selling to a family member there will not be any complications.

Business Broker Orange County