How to Offer Financing When Selling Your Business

Seller financing is when the business owner offers a loan to the person attempting to acquire the business. The loan usually is structured in a similar way to that of a loan from a financial institution. The buyer usually pays monthly sums after making an initial deposit at the beginning of the agreement. Both buyer and seller usually sign to the agreed conditions which are legally outlined.
It doesn’t always work
Seller financing has become one of the most integral parts of the business acquisition process. However it will not work effectively in every situation. It is up to you as the seller to assess the prospects and decide if it is a good fit for you. You should look at it realistically as it is essentially a gamble.
When you offer seller financing you will have to remain connected to the business sometimes for a long period of time before the payments are complete. There are sometimes cases where the buyer fails to manage the business effectively and it fails to produce the payments needed to cover the financing. Therefore as a seller you should be very careful and ensure that you can trust the capabilities of the buyer and can see that the business will be able to produce adequate returns to cover the financing.
The main downside of the seller financing is that there will be a delayed period in getting your money for the business. You will not get most of your cash right away so if you had immediate plans then this will prevent it from happening. If you are making the sale in order to accumulate the cash for something else then seller financing might not be the right option, unless you will be collecting a hefty sum upfront for the initial payment.
Screen your Buyers
To protect yourself from losing from a seller financing choice, you need to thoroughly screen your buyer to ensure that they are the true fit for the business. Sometimes sellers are concerned about the success of the business when they leave, mainly because they have formed an attachment to the business having been the owner. When you offer seller financing you have one more reason to be concerned about the business’ success. When choosing the buyer, look at their skills, history and try to figure out where their frame of mind stands in order to figure out if they are ready to facilitate the success of the business.
Request a Deposit
Ensure that you require some upfront payment when you are offering financing to the buyer. It is always wise to cover a third or two thirds of the business cost for the buyer in financing, this way you will have less to lose from the process. Sometimes you might think of offering more than this. However you should bear in mind that this proposes a higher chance of not getting the returns from the loan.
You Don’t Have To Offer It
When searching through business sale platforms like Businesses Buy Sell, several sellers offer financing. Because of this, buyers will have gotten used to the idea of seller financing as it is common in the world of business. However you have no obligations to do this. If it is not a good fit for you then you don’t have to do it. Sometimes buyers will try to force the idea on to you but you must not allow this to be the only reason you decide to offer this benefit. If you are hesitant about it then you should not ignore your instincts as you may end up losing. Take your time to decide if this is the right choice and only then should you offer financing for the business.