Structuring And Negotiating the Deal – Cash Plus Seller Financing

Cash down plus a seller-financed note

(Excerpt from Selling Your Business for Dummies – co-authored by the CEO of Sunbelt, the world’s largest business brokerage firm)

More typical than an all-cash deal is a deal where the buyer pays a portion of the price at closing and signs a promissory note to pay the rest of the price, plus interest, over a specified time period.  When you accept a promise of future payments, you’re issuing what’s called a seller financed loan.  When you hear business sellers say that they have to carry paper, they (often) mean they have to provide the buyer with a loan for a portion of their purchase price.

Buyers sometimes request that a portion of the purchase price be paid as a balloon payment, which is a lump-sum payment made at an agreed-upon future date, usually months – or even years – after the sale closing.  The benefit to the buyer is that by replacing the need for ongoing monthly payments with the promise to make a future balloon payment, the buyer can keep early cash flow working to
transition and build the business.  The risk, which sits squarely with the seller, is that the buyer won’t be able to make the payment when it’s due.  Chapter 14 has plenty of information on how to protect yourself when agreeing to deferred payments.

What’s in it for buyers (and sellers)

By offering to provide your buyer a loan, sellers boost your sale prospects in several ways:

– Sellers ease buyer concerns about the future success of your business.  By offering to accept deferred payments for part of the purchase price, you basically put your money where your mouth is in regard to your belief in a positive future for the business.

(Talk to your Sunbelt Business Advisors broker & your legal & financial advisors for further details)

 How it directly affects the Seller

Upside – tax advantages: By allowing the buyer to pay the loan off over a number of years, you spread the tax impact from sale income over a longer period than would be the case with a one-time payoff.

(Talk to your Sunbelt Business Advisors broker & your legal & financial advisors for further details)

Seller financing has great potential to offer advantages to both the sellers and the buyers in any transaction.  As in every business decision you are the only one who knows what’s right for you & your unique situation.