Are you considering selling your business? In a perfect world every buyer would come to the table with an all-cash full price offer, but in reality we know that’s not going to be the case.
Many small business buyers will qualify for loans like those from the SBA (Small Business Administration), but a far more common practice is seller financing.
Seller financing means a buyer pays a substantial down payment (typically more than half of the purchase price) and then you finance the rest for a specified interest rate and amount of time. If the buyer falters for some reason you get to keep your money and you get your business back.
Seller financing happens in a lot of small business transactions because it can be a very successful way to get a business deal done. From a buyer’s perspective it means the current owner is willing to keep some skin in the game – they know the business is in good shape and has a future (so they can get paid). It also means that a buyer will have the option to buy businesses that would otherwise be unaffordable. From a seller’s perspective seller financing acts as a marketing tool because, as previously mentioned, it means you are willing to bet on the future of the business. It also increases the pool of buyers who can now consider buying your business.
Is it always a good idea to offer seller financing? It depends. If you are someone who just wants out and has no desire to have any attachment to your business after the sale, then maybe seller financing isn’t for you. If you are in a very hot industry that is currently attracting cash buyers then you might get away with not having a seller financing conversation at all. Even if you don’t love the idea of seller financing it’s typically a good idea overall to leave all financing options open when you list your business. You don’t want to miss out on a great buyer and a great return because you decided too soon to refuse a more creative financing deal. Keep that door open!
Have you decided to sell your business but hadn’t yet considered offering seller financing? Did you buy your business using seller financing and have an experience to share? Please feel free to leave us questions or comments.