When selling a small business, a business owner may offer seller financing to help attract more potential buyers. Seller financing is the act of the present business owner financing a portion of the business to sell it to the new owner. Seller financing is also a good strategy when trying to close a sell. Any business owner who offers seller financing should know a couple of things to help make the venture a success.
The Terms of the Business Contract Must Work for Both Parties
A business owner who provides financing to sale their business only offers a portion of the sale price. The rest of the financing must be secured by the buyer. The terms of the agreement must work for the seller and buyer. The terms may vary by business.
The Seller Must Protect Themselves While Selling Their Business
A business owner who offers seller financing means they are a lender. Lenders always take steps to make sure they are repaid. This means the business owner must do the same. Remember, if the buyer cannot repay the business note within the agreed terms, they must know certain repercussions. These repercussions must be included in the purchase agreement. One example of a seller protecting themselves is taking back the company if the buyer cannot pay. Another option is for the buyer to use the company’s real estate as collateral to secure the business note.
Seek Legal Representation Regarding Seller Financing
The purchase agreement, business note and agreed upon terms must always be looked at by an attorney. It doesn’t matter if the both parties are working with a business broker. An attorney should be involved in each aspect of the sale. This makes sure each party is covered should if part of the contract falls apart. In addition, write the purchase agreement in plain and clear language that will be clearly understand to both parties and a judge if there’s a lawsuit.
Have a Backup Plan for End the Seller Financing Option
Selling financing involves accepting a business note for part of the business. The buyer finances the rest. The seller may be willing to hold the business note, but they not like risk associated with it such as feeling like a lender. Many sellers become frustrated because they’d rather have the cash than the business note. For those who want to scream “sell my note” in frustration, that can be option.
Many companies buy business notes. They do not provide loan, but cash for all or part of the note. This can help a seller get rid of their seller financing and move on to their next venture.
Seller Financing has a Fall Back Option
Seller financing is a great option to have when trying to sell a business. However, it does come with a few risks. For instance, the buyer may miss payments. They may take the business in the wrong direction and it ends up closing. There is a saving grace, selling a business note.