Seller financing helps close the deal.

Sellers may long for the immediate satisfaction of an all cash-in-hand sale.

However, more often than not, a seller may need to finance part of the sale of a business.

Why?  First of all, many potential buyers don't have the necessary capital or lender resources to pay cash. Even if they do, they are often reluctant to put such a considerable sum of cash into what, for them, is a new and untried venture. Likewise, banks are traditionally very selective about giving loans for the purchase of most businesses.

Moreover, potential buyers usually feel that the business should be able to pay for itself. If a seller demands all cash, then the buyer is led to believe that either the business can't support any debt or the business isn't any good and the seller wants his or her cash out of it now, ‘just in case’.  Financing the sale tells a serious potential buyer that the seller has enough confidence that the business can pay for itself.

There is a greater chance that the business will sell with seller financing. In fact, in many cases, the business won't sell for cash unless the owner is willing to lower the price substantially.

Seller-financed businesses generally sell for higher prices. Moreover, the interest on a seller-financed deal will add significantly to the actual selling price. What is more, the tax consequences of accepting terms can be more advantageous than those of an all-cash sale.

On the other hand, the biggest concern the seller has is whether or not the new owner will be successful enough to pay off the loan the seller has agreed to provide as a condition of the sale. If the buyer defaults on the payments, the seller would be forced either to take back the business or forfeit the balance of the note. Therefore, the sellers, with the assistance of their business brokers, shall carefully assess the financial credibility and the ability to run a successful business of a potential buyer.

There are many ways to structure the seller-financed sale that make sense for both buyer and seller. The terms offered by sellers are usually more flexible and more agreeable to the buyer than those offered from a third-party lender. Sellers will typically finance 50 to 60 percent  or more of the selling price, with an interest rate below current bank rates and with a far longer amortization. The terms will usually have scheduled payments similar to conventional loans. A business broker will be able to design creative financing that suits both parties’ needs.

Overall, it is important to note that seller financing has advantages that, in many instances, far outweigh the immediate satisfaction of cash-in-hand.