Selling Your Business…Why Seller Financing is so important

If you are selling your business? You need to know this.

Hello on behalf of florida business exchange welcome two reasons for owner financing this is one in a series of videos from florida business exchange that cover the basic steps you will climb in selling your business a critical step in this process is seller financing in today’s tight credit market a business owner must understand that banks and buyers may require

The seller to assume a portion of the risk as a condition of the sale but before i cover the frequent need for seller financing i’d like to thank you for your interest in working with florida business exchange to help you sell your business the florida business exchange team is one of the largest business and commercial brokerage firms in florida with over 20

Intermediaries statewide we have over 100 years of combined experience in business sales and consulting resulting in transactions worth millions of dollars annually we represent a diverse number of qualified buyers including private equity groups and high net worth individuals our team is highly trained to assist you in valuing your business preparing your business

For sale guiding you through due diligence and effectively and efficiently transferring your business our objective is for you to receive full value and peace of mind after the sale now back to discussing the frequent need for seller financing one of the questions our intermediaries will ask the business owner when they prepare a listing agreement is how much of

The transaction will they be willing to seller financed even though you may not be a bank you will need to keep an open mind about some amount of seller financing in fact by agreeing to hold a note for some portion of the transaction you will not only improve your ability to sell but you will likely sell at a higher price so what exactly is seller financing seller

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Financing is when the seller holds a buyers note for a portion of the sale of their business the buyers note is a contract between the buyer and seller specifying the loan amount interest rate and the number amount of installments until the loan is repaid the buyers note is referenced in the purchase agreement and it along with the security agreement is always

Drawn by an attorney and then signed and acknowledged by the buyer both corporately and personally often the buyers note is accompanied by a security agreement or personal guarantee giving the seller the ability to lean any and all of the buyers assets in the event of default this lien including a list of assets is recorded in the local county and in the state

Registry as collateral for the loan in addition to improving the probability of selling your business and maximizing the price of the sale there are other benefits to seller financing one potential benefit is the tax ramifications if you take all cash at closing you will likely be paying a higher tax bill for capital gains taxes are a very important consideration

So before you take a firm stand against seller financing you should discuss the terms of any transaction with your cpa or tax attorney you must also consider that seller financing will require a lower down payment to purchase your business this will help expose your business two more potential buyers and often this may be the only possible way a buyer can purchase

Your company under present market conditions banks are reluctant to lend money even for hard assets and lending for goodwill is very infrequent without a portion of seller financing included even though sba loan guarantees are readily available they do not guarantee a bank will be willing to write a loan for your transaction in many cases the banks are requiring

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That the seller hold a note for at least twenty percent of the transaction price this is often referred to as requiring the seller to have skin in the game so if you really want to sell and receive full value for your business you may have no alternative but to accept seller financing there are some additional considerations that will help protect your investment

In seller financing one consideration is to make sure the buyer makes a large down payment the more skin the buyer has in the game the more likely they are to ensure the business will be run successfully and you will receive your payments a second consideration is to lean the assets of the business if the buyer defaults on the note this gives you the ability to

Step back in and take over the business a third consideration is to make sure you have a qualified buyer at florida business exchange we do our best to make sure buyers are qualified to run your business we assist you in reviewing prospects for your business and the final consideration is to verify the buyers credit worthiness you want to make sure the buyer has a

Sound financial history the assets necessary to purchase the business along with the working capital to meet the needs of the business during the transition and training period addressing these considerations should ease your mind about seller financing again on behalf of florida business exchange i would like to thank you for listening if you have any questions

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Regarding preparing your business for sale or the amount of seller financing that will be required to sell your business please do not hesitate to contact your florida business exchange intermediary for a complimentary consultation i wish you the best of luck in pursuing your after-sale dreams and having our team of professionals helping you through the process you

Transcribed from video
Selling Your Business…Why Seller Financing is so important By Chris Savage