Financing a Small Business for Sale
Where is the money coming from?
Although lending institutions have become much more aggressive in the last three years, if you plan to market your small business for sale, be prepared to know where the money is coming from. Very few buyers have the ability to pay cash and even though it’s not your responsibility as the seller, its always a good idea to have a lender that know the business and is willing to loan the money under the right circumstances. If you have a small business for sale, have financing prearranged for a potential buyer can make the the sale of a small business much easier and quicker.
Lending institutions are not the only alternative for financing a small business sales transaction. What are your alternatives? The Seller Financing – Increasingly, buyers and lenders are looking to the seller for financing as they try to put a transaction together. In such a scenario, the seller will hold a note at an agreed upon interest rate for a specific term or amortization – generally ranging from five to 10 years. The terms of the sale may include a balloon payment three to five years after the purchase date. It’s a way of giving the buyer time to get up and running and to establish a successful track record with the business. Seller financing makes the bank more comfortable with the transaction. Lenders know they have a seller who has a vested interest in the success of the business rather than one who will take their money and run. There are a number of benefits for business owners who are considering seller financing:
- Fast sale – SBA can take 60 to 90 days
- Flexibility – High interest rates
- Tax Breaks – Spreading out payment over time can minimize your tax liability
- Protections – The buyer may have promised to do certain things for loyal employees, customers etc. Seller financing when selling a small business will hold the buyer true to their promise.