Whenever I sit down with a business owner who is thinking about selling their business, one of the first questions I always ask is “would you be willing to finance part of the purchase for a qualified buyer”?

While they might politely mutter… “I think all cash would be best for me”.

What they are really thinking is…

“Are you out of your @#&* mind?”

Hey, I don’t blame them… I would probably say the same thing. But if you dig a bit deeper and look at all the facts, seller financing is clearly an option many sellers should consider.

FACT #1: Did you know that most “main street” type business sales involve some sort of owner financing? That’s right, just about every sale of a small business involves seller financing of some sort. Even most of the big boy deals often involve seller financing.

FACT 2: Did you know if someone uses an SBA (Small Business Administration) guaranteed bank loan to buy a business, then the bank and the SBA will often require the seller to carry back 10% or 15% of the sales price in a secondary lien position?

FACT #3: More importantly, did you know that by offering seller financing you will get more money for your business? Possibly pay less taxes? Attract more buyers? Yes, yes, and yes!

Let’s take a look at just a few of the
benefits for sellers offering financing:

1. You can get a higher price when you provide financing. Sometimes much higher!

2. When a buyer is paying all cash, they have the upper hand when it comes to negotiating the price and terms of a deal. What do you think happens when the seller is providing some of the financing?  Exactly. Now you, the seller, has the position to dictate the deal terms and structure.

3. You can close much faster. Anytime you need a bank or the government loan to close a business deal, you better plan for delays.  And don’t kid yourself, a loan is much harder to qualify for in 2012 than it was in 2005.

4. You will attract far more buyers with owner financing. There is an old saying… “The money has to come from somewhere”. With bank loans so hard to get right now, offering financing will bring significantly more buyers to the table.

5. There are also big tax benefits – instead of paying tax on the entire proceeds at one time, by offering seller financing you only pay taxes as payments are made. This can make a huge difference in your bank account. Talk to your accountant for the specifics in your case.

6. Your loan to a buyer is secured by both the business and the personal guarantees of the buyer, and  further protected by UCC filings done by your closing attorney. If the buyer defaults then you get the business back and can sell it again.

7. You get to see the buyer’s resume, credit report, financial statement, business plan and other related information. You get to decide whether to provide financing to the buyer.

8. You can get a much higher interest rate on seller financing than is currently available by bank CD’s. Way more!

9. Finally, you can design the loan you offer to the purchaser to best suit your financial goals. Want to retire in 5 years and buy a home in Florida? Make the loan have a balloon payment due in 5 years!

My point is that you should not immediately dismiss seller financing. In fact, in many cases offering seller financing is clearly the way to go!