Pros and Cons of Seller Financing
Small businesses that are being sold in this tough economy are almost guaranteed to go with seller financing in order to close the deal. Most lenders have tightened up credit to the point where only the strongest deals have a chance of receiving bank backing.
Gone are the days when banks routinely approved "goodwill financing" as lenders are much more interested in financing what is tangible than ethereal attributes such as brand perception, customer loyalty or employee happiness. While those things are important for any business, banks are looking to finance concrete numbers only.
Getting Your Business Sold
So, what does this mean for you if you are selling your business? Is owner financing of the last resort or are there some aspects of this option worth considering?
With the tighter lending restrictions, bankers who are willing to finance small business sales are only covering 50-60 percent of the purchase price - the buyer or seller must cover the rest. With buyers typically putting 15-20 percent down, the remaining funds need to be financed. That is where the seller comes in.
Sellers aren't usually thrilled to offer financing for their businesses, preferring to close the deal and walk away with no further obligations. But, that option leaves open the possibility for the seller to take back the business if the new owner doesn't meet certain performance benchmarks.
Securing Your Position
Benchmarks ensure that the new owner doesn't drive the business into the ground without paying the consequences. If the business begins to flag, then the seller can retake possession to protect his stake. Of course, under that legal arrangement the buyer loses his down payment as well as his interest in the business.
Small business sellers may look at seller financing with skepticism especially if it leaves open the possibility that they may have to run the operation again if the new owner can't. But the leverage exerted by the seller could actually help the buyer work diligently to make sure that his own interest in the company is preserved.
Seller financing may not be the favorite choice of either party, but if that's what it takes to get the deal done in 2010, then that is what needs to be considered.
Business Selling Tips
From the Fieldquestions-answers-recommendations for business owners and acquisition managers.
For additional information, contact the Novars Group
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Managing Your Business During Tough Times
Analysts say that the Great Recession which began in December 2007 came to an end some time last summer, but all evidence suggests that tough economic times are still with us.
Ask any business owner how things are going and you’re likely to get a mixed bag of answers. While many will agree that things are better right now then they were exactly one year ago, these same people will probably also say that business is well below levels reached before the recession began.
at our Money Management BLOG
How to Quickly & Safely Send Money
from our BLOG-magazine
If you’re in a financial bind and need money fast, one way to procure those funds is to borrow from a family member or a friend. You may have a credit card and could take out a cash advance or perhaps your card is maxed out or simply unavailable. If your cash on hand isn’t enough to cover the crisis, then you’ll need to get money quickly. Fortunately, time, distance and national borders do not offer the impediment each one once did.
at our Money Management BLOG
View more money management ideas at our Money Management BLOG
7 Hot Tax Tips
from our BLOG-magazine
Keeping Receipts — Receipts are important and should be kept on hand, offering proof of purchases made or donations given. If donating to a charity, you’ll want to get a receipt from that organization showing the items you donated. You may be able to value these gifts yourself too.
at our Money Management BLOG
Small Business Advertising on a Shoestring
from our BLOG-magazine
It isn’t enough to run your business by paying the rent and utilities, meeting payroll and purchasing inventory. You still have to promote your enterprise, but guess what? Most traditional forms of advertising can be expensive, even prohibitive for small business operators.
at our Money Management BLOG
Smart Credit Management Ideas
from our BLOG-magazine
How is credit working for you? Or is it? Credit can come in handy, especially in emergencies, but credit can also become a noose that hangs you financially. Smart credit management ideas can help consumers maintain very good credit, by controlling it instead of the other way around. Let’s explore some ideas on how you can make credit management work for you.
at our Money Management BLOG
The Long Road To Financial Freedom
from our BLOG-magazine
It is the dream of many people to have financial freedom. No one wants to live a life where they have constant debt, creditors calling all the time and no chance of ever seeing retirement. Financial freedom takes a lot of hard work, but it doesn’t mean it cannot be achieved. Even in this economy, it is possible to live the life you really want to live.
at our Money Management BLOG
View more money management ideas at our Money Management BLOG
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