Business for Sale Financing Options
The down payment for buying a business is normally equal to SDE. Here are options for financinig the balance due.
Business for Sale Financing Option #1
(the most common) - Bank with SBA Guarantee with or without a small Seller note
- Sometimes requires the seller to take a subordinated small note - no problem except for SBA 155.
- Sometimes requires additional collateral - Buyer's house and any other Buyer assets
- If a Buyer gets into trouble and misses payments, the bank shuts down the business & forecloses.
- They layoff lifelong employees, many are like relatives to the Seller.
- They don't pay off lifelong creditors, a few are the Seller's personal friends.
- The customers have no place to acquire goods & services, a few are the Seller's personal friends.
- The business is closed and the Seller's legacy is gone, gone forever.
- Next, the bank has an auction. Auction proceeds don't cover the bank note (not many hard assets).
- Therefore, the Seller's note is worth nothing and the business is gone.
Business for Sale Financing Option #2
- Seller only pays tax on the down payment and not on the note amount.
- Seller gets a good return on his money and a nice monthly income.
- Seller is protected because they get monthly P&L, Balance Sheet, Right to Offset, etc.
- Buyer gets into trouble, however seller already knows because of the monthly reports.
- Together they work out the problem, maybe seller doesn't get a payment or two but business continues.
- Business continues, buyer's down payment is safe and sellers note is safe.
- Employees jobs are safe, creditors are safe and clients continue to get goods and services.