Buying another business requires a good deal of capital or lender resources. However, did you know that a large percentage of buyers don’t have the necessary cash on hand to make the purchase? This is where seller financing comes into play. In this article, we will take a deeper look at some of the key points to remember if you are considering seller financing as an option.
Is Seller Financing a Good Idea?
Business owners often wonder if seller financing is a good idea. On the other hand, many buyers feel that a seller’s reluctance to provide seller financing is a “red flag.” The notion is that if a business is truly as good as the seller claims it to be. Providing financing shouldn’t be a “scary” proposition. However, it is important for sellers to look at the facts.
Sellers who sell for all cash receive approximately 70% of the asking price. However, sellers receive approximately 86% of the asking price when they offer terms. So, while there is some risk involved for the seller, it’s not nearly as bad of a risk.
Seller Financing has a Range of Benefits
Seller financing allows the seller to receive a higher price for their business. It also allows receiving a higher interest rate from the buyer than they would from a financial institution. Additionally, the interest on a seller-financed deal will add significantly to the actual selling price. There are also tax benefits to seller financing versus an all-cash sale. It which serves as a vote of confidence in the buyer.
It is key that sellers remember that in most situations. The buyers are putting a large percentage of their personal wealth into the purchase of the business. In other words, in most situations, the buyer is heavily invested even if financing is involved.
Business brokers are experts in helping buyers and sellers find creative ways to finance a sale. They can recommend a range of payment plans that can make the difference between a successful sale and failure. In particular, seller financing can be a great way to get a good price for your business while still retaining some control over the sale process. Talk to your broker today to learn more about how seller financing could work for you.