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A business owner who demands an all cash deal will usually receive a lower price for the business. Sometimes, as much as 30 to even 40% lower. Well, it’s very common for the sale of small businesses to include seller financing as part of the deal. In fact, in many cases, this is the only way that a deal will get done, is if the seller is willing to hold a note for part of the purchase price. . Seller financing can also accomplish several goals from a buyer’s perspective. First of all, the buyer always faces the risk that the business success is directly related to the involvement by the previous owner. By having the seller finance part of the business, this gives the buyer additional confidence that the seller believes that the business can thrive without him. Additionally, seller financing can also result in the buyer being able to pay more money for the business than he would be able to if he was using outside financing sources such as a bank. Just as a buyer will conduct due diligence on the business, a seller should conduct due diligence on the buyer.
You need to review the buyer as any business would review someone that they’re lending money to. With permission, you can obtain their credit scores and may also ask for financial references from the buyer and obtain a financial statement. Also, by using a savvy lawyer, someone familiar with seller financing, your agreement can leverage the buyer’s assets and secure the loan, further limiting your liability. Seller financing can be risky, but there are few simple steps that you can take to verify the buyer’s ability to make payments, secure the financing, and even reduce your risk. So if you’re considering selling your business, please contact us for a private consultation to discuss your options and learn how to limit your liability and get your business sold. Seattle Business Broker-Judy Elrod-Murphy Business was a former Chief Lending Officer and Business Banker so she can help you determine if seller financing makes sense for you. Contact her at 206-209-2266, 1200 Westlake Avenue N., Suite 1006, Seattle, WA. Serving all of Western Washington. www.judyelrod-murphy.com.
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