Who Will Finance The Purchase of Your Business?
Starting a business always involve risks and challenges. Sometimes, despite the owner’s best efforts and attempts to save the company, the most practical option left is to sell. Other entrepreneurs decide to sell their companies because they simply want to take a rest from the everyday tasks of business management. This article talks about the basics of seller financing – what it is, the benefits and the risks.
What is seller financing?
Seller financing is when the seller offers to finance the business so that the buyer will not need to apply a loan from a bank or a financial institution. A seller may opt to do this to be able to sell the business more quickly.
A buyer is expected to give a down payment and submit the rest of the payments in installments. The buyer and the seller will come to an agreement about the length of the repayment period as well as the terms of payment. The seller takes a lien against the business until the buyer has completed payment.
This means, the seller continues to take a portion of the profit plus interest while the repayment is going on. Many aspiring business owners prefer this arrangement because it allows them to own a business without investing a large sum of money and they also get the chance to manage the business and benefit from its profits as well.
Should You Offer Seller Financing?
What about the risks associated with seller financing? First there is the risk that the seller of the business may not get paid in full should the business fail. This is why some sellers require the submission of collateral as a security just in case the business does not go as well as expected.
Clearly, seller financing has its advantages and risks which greatly depends on how well the new buyer manages the business. If you are planning to sell your business in this method, always consider the pros and cons of your situation. Also, check the buyer’s background and reputation to be sure that you are dealing with a buyer who is serious about keeping the business profitable and stable.
Irish Taylor is a bussiness loan consultant with Startup Business Loans and has been providing consumers and business owners with startup business financing since 1992. For years she has helped people with credit and loan problems especially pertaining to business start up, SBA loans and Unsecured loans.
Copyright 2009.
Related Article: Borrowing Money To Build Your Business
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