3 Reasons to Consider Seller Financing in the Sale of Your Business

Hi everyone! Hope you’re having a great
week. If you’re planning on selling a business you probably hate the idea of
seller financing or holding a note for the buyer. Let me tell you today why you
should warm up to that idea. But first a little bit about me, my name is Brett
Cenkus. I’m a business attorney. I do my legal work out of Cenkus Law which is
my law firm based in Austin I have an office in Houston as well and I’ve got
clients all over. I also do some consulting, some business and startup consulting out of The Startup Shepherd. The links to both those websites are in
the description. Now, seller financing and why you should warm up to it as a seller. Three main reasons. One – higher purchase prices. I read recently a business broker
survey that said the average sale price for a business where the sell helped
carry back financing is 15 percent higher. So, larger purchase prices
okay. That holds true as well I know Realtors who sell who sell
commercial property who sell land who tell me all the time that you’re gonna
get more money when you structure a more creative, favorable deal for a buyer. Number two – you increase your pool of buyers. That might be one of the reasons
that you get a higher purchase price because you’ve got more competition,
you’re increasing the number of people that can get a deal done through you. Number three – there’s interest on the note and that might have favorable tax
consequences for you to get that paid over time rather than right upfront – talk
to a CPA, yadda, yadda, yadda – but the point is that’s another reason to consider
seller financing. Don’t categorically write it off, it could make a ton of
sense and can help you get a deal done. It might be something you need to do
depending on how in demand your businesses and what your market is like. Now. if you do it, though, some really important things: you want to be as
secure as possible in that note. If the buyer has other financing, and they often
will, it may not be possible to secure the note – meaning to tie the purchase to
try the payment of the loan to assets and to put a lien on those assets (the lien
of the business you just sold). That’s ideally what you want to do. If the buyer
is getting financing – SBA loan or something – they’re
gonna have a first lien on the assets. But, you need to figure out whether or
not that’s available and lien anything you can. It’s way, way better to have
leverage of security in the form of assets, to have your loan be tied to it.
So you want a secured loan not a blank not not just a regular promissory note
if you can. And, if you secure it, you’ve got to file your lien, which is usually done
with at the Secretary of State in most states depending on what the assets are.
But, the point being, look for security first if you can, and then you know you
want a relatively quick payback, and you want a high interest rate that that
makes sense and that’s all negotiable. But, again sellers, I know because I see it
all the time, want no part of seller financing, but you’ve got to realize it’s
not just a give, there’s a take there. There’s a, there’s some real strong
benefits to considering it. I’m curious if you’ve sold a business, if you’re
thinking about selling a business, are you open to seller financing? I saw a
deal get done once: a hundred percent seller financing. It was a pretty unique
situation and a heck of a deal for the the buyer (who knew the seller real well).
But, the point being, it’s not always a terrible thing and some buyers need
that for one reason or another. That doesn’t make them a bad buyer. But, I’m curious
what you think, drop a comment in. I f you want to learn more about seller
financing or M&A generally, how to structure deals, anything about startups
or business law visit me at cenkuslaw.com cenkuslaw.com. Have a great week.

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2 thoughts on “3 Reasons to Consider Seller Financing in the Sale of Your Business

  1. Good information, Brett. Seller financing is definitely a lucrative option that most owners shy away from. Thanks for sharing!

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