As the Banks are tightening lending, Seller financing may be a great option to finance a business acquisition.
As the Banks are tightening lending, Seller financing may be a great option to finance a business acquisition.
Seller financing is when the seller of the business acts as the bank and extends a note to the buyer of the business. There are several advantages and disadvantages for both buyer and seller, however if done properly, it’s a great solution to the financial crisis of today.
Here is how it works. The buyer of the business puts down a down payment, ideally 30-50% of the agreed sales price and the balance is financed by the seller, typically for 2-3 years at agreed interest rate. In order to reduce the monthly payment, the loan could be amortized over a longer period of time. At the end of the term, a balloon payment is due to the seller, at which point the buyer either pays off the loan, or refinances with a bank. It should be easier to refinance at that time. First of all the credit crunch should be over, second the buyer has owned the business for 2-3 years, which gives him a solid experience in the business, and third they are refinancing a smaller amount. The note can be secured by the business, the business assets, personal property or anything else the buyer is willing to pledge and the seller is willing to accept.
The advantages to the seller are; the business can sell quickly, they can earn interest income, get a bigger sales price for the business, postpone capital gains tax or sell the note to equity companies. The disadvantages are: they don’t get all the money upfront, they run a risk of the buyer defaulting on the note, and they continue to be involved in the business indirectly.
The advantages to the buyer are; ability to buy a business, having owners participation and input, more leverage. The disadvantages are: having to pay higher interest rate for the term of the loan, higher down payment than most SBA loans require.
I have many creative ways of financing a business and in today’s economic and financial environment, my creativity is being pushed to the limit, but the most important thing to remember, is that there is always a way to finance a deal as long as both parties are willing to keep an open mind, compromise, and achieve the common goal.
As the Banks are tightening lending Seller financing may be a great option to finance a business acquisition - To learn more about this author, visit David Dolitsky's Website.
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Since the start of the financial crisis last year, banks have stopped extending credit for virtually any loans including SBA type loans. It is very difficult for business buyers to get approved for financing, even buyers who have excellent credit, money down and collateral, which are the three major requirements. Of course this environment won’t last, but in the mean time there is a solution for both buyers and sellers and that is Seller Financing.
Seller financing is when the seller of the business acts as the bank and extends a note to the buyer of the business. There are several advantages and disadvantages for both buyer and seller, however if done properly, it’s a great solution to the financial crisis of today.
Here is how it works. The buyer of the business puts down a down payment, ideally 30-50% of the agreed sales price and the balance is financed by the seller, typically for 2-3 years at agreed interest rate. In order to reduce the monthly payment, the loan could be amortized over a longer period of time. At the end of the term, a balloon payment is due to the seller, at which point the buyer either pays off the loan, or refinances with a bank. It should be easier to refinance at that time. First of all the credit crunch should be over, second the buyer has owned the business for 2-3 years, which gives him a solid experience in the business, and third they are refinancing a smaller amount. The note can be secured by the business, the business assets, personal property or anything else the buyer is willing to pledge and the seller is willing to accept.
The advantages to the seller are; the business can sell quickly, they can earn interest income, get a bigger sales price for the business, postpone capital gains tax or sell the note to equity companies. The disadvantages are: they don’t get all the money upfront, they run a risk of the buyer defaulting on the note, and they continue to be involved in the business indirectly.
The advantages to the buyer are; ability to buy a business, having owners participation and input, more leverage. The disadvantages are: having to pay higher interest rate for the term of the loan, higher down payment than most SBA loans require.
I have many creative ways of financing a business and in today’s economic and financial environment, my creativity is being pushed to the limit, but the most important thing to remember, is that there is always a way to finance a deal as long as both parties are willing to keep an open mind, compromise, and achieve the common goal.
As the Banks are tightening lending Seller financing may be a great option to finance a business acquisition - To learn more about this author, visit David Dolitsky's Website.
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David BarrDavid Barr is the President of Venture Opportunities, Inc. David has been a professional business broker/intermediary since 1980 focusing on General Business Brokerage and Mergers and Acquisitions representing client transaction value from $400,000 to $20,000,000. Mr. Barr has handled the sale of over four hundred and fifty companies. David earned a university degree from the State University of New York majoring in economics and business. David holds the Mergers and Acquisition Master Intermediary and the Certified Business Intermediary designations from the International Business Brokers Association. He is also a Senior Business Analyst and a Texas licensed Real Estate Agent. For more information about David and Venture Opportunities, visit www.bizdealmaker.com. - Visit David Barr's Website |
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Dave KurlanDave Kurlan is the founder and CEO of Objective Management Group, Inc., the industry leader in sales assessments and sales force evaluations, and the CEO of David Kurlan & Associates, Inc., a consulting firm specializing in sales force development. Dave has been a top rated speaker at Inc. Magazine's Conference on Growing the Company, the Sales & Marketing Management Conference and the Gazelles Sales & Marketing Summit. He has been featured on radio and TV, including World Business Review with General Norman Schwarzkopf, in Inc. Magazine, Selling Power Magazine, Sales & Marketing Management Magazine and Incentive Magazine. He is the author of Mindless Selling and Baseline Selling – How to Become a Sales Superstar by Using What You Already Know about the Game of Baseball. He created and wrote STAR, a proprietary recruiting process for hiring great salespeople, and he writes Understanding the Sales Force, a popular business Blog and is a contributing author to The Death of 20th Century Selling and 101 Great Ways to Improve Your Life, Volume 2. - Visit Dave Kurlan's Website |
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David AchesonDavid Acheson is the founder of DCJA Consultancy. DCJA Consultancy is a management consultancy business specialising in B2B sales consultancy. They offer bespoke and packaged sales consultancy including Sales Optimisation Review, Interim Sales Management, Sales & Marketing Review, 1:1 Sales & Management Staff Analysis, Management Training, Solution Sales Training, Creation of New Pay Plan, KPI's, run Customer Feedback Campaigns, assist with Recruitment, Coaching, Appraisals and set up Strategic Marketing Campaigns. David spent his early career in accountancy and then moved into sales in 1982, working in Office Equipment, IT, Advertising, Training, Outsourcing and Consultancy. He has held many Senior Positions in SMBs and Global Organisations including Head of Sales Operations & Head of Business Development. His knowledge, skills and great experience of the Sales Industry has led to David making keynote speeches and running educational sessions to key businesses through organisations including The Chamber of Commerce and Business Link. - Visit David Acheson's Website |
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Linda RichardsonLinda Richardson is the Founder and Executive Chairwoman of Richardson, a global sales training and performance improvement company. As a recognized leader in the industry, she has won the coveted Stevie Award for Lifetime Achievement in Sales Excellence and she was identified by Training Industry, Inc. as one of the “Top 20 Most Influential Training Professionals.” Ms. Richardson is credited with the movement to Consultative Selling and is the author of ten books on selling and sales management, including Sales Coaching — Making the Great Leap from Sales Manager to Sales Coach, and Stop Telling, Start Selling. She teaches sales and management at the Wharton Graduate School of the University of Pennsylvania and the Wharton Executive Development Center. Linda is a frequent speaker at industry and client conferences, has been published extensively in industry and training journals, and has been featured in numerous publications, including The Wall Street Journal, Forbes, Nation’s Business, Selling Power, Success, and The Conference Board Magazine. Learn more about Richardson's sales training and performance improvement solutions at http://www.richardson.com web - Visit Linda Richardson's Website |
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Anne BarrAnne Barr has over 26 years experience in sales and marketing, six years as a franchisee. She has assisted over 367 business owners and purchasers to achieve their goals in career change, transition and exit strategy. She holds the designation of Certified Franchise Executive from the International Franchise Association, Certified Business Intermediary from the International Business Brokers Association and Board Certified Broker from the Texas Association of Business Brokers. Anne is active in professional organizations, networking groups and volunteers for non-profit entities. As owner/operator of four successful businesses, Anne has proven people skills and enjoys helping clients find the right "fit" in business ownership. Visit www.FranchiseOpportunitySpecialist.com for more information about me and my company. - Visit Anne Barr's Website |
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Casey GollanCasey Gollan, Business Coaching & Mentoring Programs. Add $1 Million to $10 Million in the next 1 to 3 years. Since 1996 Casey has to added hundreds of millions of dollars to businesses. Watch a free video see client results Business Coaching website. - Visit Casey Gollan's Website |
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Kim CastleWith nearly two decades in the advertising and design business, with clients like Domino's Pizza, General Motors, Direct TV, Pedigree, Wolfgang Puck, Higher Octave Music, Hollywood Celebrity Products, Disney, and Paramount, as well as thousands of entrepreneurs around the world define, structure, communicate, and position their business for greater profits, BrandU(R) co-creators Kim Castle and W. Vito Montone discovered that entrepreneurs could experience the same power that big brands command for a fraction of the cost with the world's only process-based results-drive Integral approach to business creation. BrandU(R) is helping entrepreneurs grow with the power of extreme clarity from idea...to brand...to market(TM) and helping one million entrepreneurs become successful and whole so that they can make a difference in the world. Are you one of them? If you want to experience clarity all the way to the bank(TM), get started now at http://www.brandu.com. - Visit Kim Castle's Website |
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