Business Brokers NJ: Article About Financing For A Buyer
With banks having strict requirements for acquisition loans, it can be a struggle to land proper financing. It can be especially difficult for first time business buyers to get the necessary financing. For this reason, many sellers consider financing the sale themselves. Like any business decision, seller financing has its advantages and disadvantages. It's ultimately your decision on whether or not you want to offer seller financing.
The majority of business sales involve some form of financing. While, there are certain buyers and investors that are able to enter a business sale with cash readily available, most buyers need to take out a loan.
There are several potential sources of financing for a buyer. In some cases, the buyer is able to secure a loan through a traditional lender. In other cases, you may choose to offer seller financing in order to expedite the sale. The Small Business Association (SBA) also offers loans to qualifying business buyers. Our business brokers NJ can consult with you on the different types of buyer financing and determine if seller financing is a good option for your business.
Sellers who are willing to finance can often get a sales price that is very close to their asking price. Because sellers can be flexible with their repayment plan and even take other forms of collateral, buyers are willing to invest more in order to take advantage of the more relaxed financing terms. This also helps increase your buyer pool. There is a big difference in the number of buyers who are pre-qualified to buy a business from a traditional lender and those who hope to qualify after inquiring about a business.
Traditional loans are those offered by a bank or other lending institution. The buyer provides a certain percentage of the asking price as down payment and then finances the rest through the lender.
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Depending on the current economic condition, a buyer may have trouble securing a traditional loan and need to rely on an alternative form of financing.
SBA loans are guaranteed loans provided to small businesses. The SBA does not provide the loans, but does guarantee financing through a secondary lender. The SBA offers fixed rate loans, short-term loans, and low-interest loans. You can get your business pre-approved for an SBA loan.
Many potential investors find that traditional lending is not an option after they've already gotten their hopes up about buying the business. With seller financing you open up the pool of buyers and increase the chance of selling your business quickly. There are also tax breaks available to sellers who opt to finance the sale, ultimately saving you money at the end of each year.
Agreeing to finance the purchase means that you still have the risks associated with owning the business. If the buyer is unable to keep the business successful, they'll be unable to make payments. Some sellers find themselves in a foreclosure situation after buyers were unable to keep the business afloat after the sale. This puts you back in the position of having to sell the business again. It's also not as desirable to accept payments for a business as it is to get a check for the purchase price and may put any investment opportunities on hold.
Ultimately it's the seller's decision on whether seller financing is a viable option. A business adviser will analyze your situation and suggest the best course of action. But the final decision rests on whether or not you are willing to take the risks associated with seller financing.