Seller financing is when a business owner provides a loan to the buyer to cover a portion of the purchase price. Other financing sources cover the rest of the purchase price. The seller is basically acting as a bank for the buyer. Sometimes when sellers offer financing it can help them achieve a higher sales price.
Performing Due Diligence
If you consider seller financing, it is important that you know that your buyer is reliable. Here are a few qualifications to consider:
- Do they have the experience to run your business
- Check financial statements
- What’s their vision for the business
- Check the potential buyer’s credit report
If the financing fails, most contracts allow for the seller to take back a business in 30 to 60 days. This way, the seller can avoid a potentially serious business problem.
Providing Benefits For Both Parties
Seller financing can be of considerable interest to buyers. It sends a very clear message. You are stating that you have confidence that your business will generate both short term and long-term revenue. That level of confidence speaks volumes to buyers about the health of the business.
What Due Terms Typically Look Like
Five to seven years is a typical length of a contract. How much should a seller finance? There are no steadfast rules, but it is common for sellers to finance up to 60% of the total purchase price.
There is a good deal of paperwork involved in seller financing. Opting to work with a business broker is essential. EBIT Associates can guide you through the selling process and help you avoid costly mistakes.