Benefits of Seller Financing
Offering seller financing can expedite the time it takes to sell your business. With a limited amount of third-party capital, such as a traditional bank loans, having the option of seller financing on the table can increase the appeal of your business to potential buyers and speed up the selling process. If you are offering to front funds toward the sale, consider including your willingness to finance in your sale listing.
Although the purchase price of your business will ultimately be determined by the market, offering financing to buyers will often yield a higher purchasing price than cash or commercially financed deals. Owner-financed businesses are typically more appealing to buyers, resulting in higher sale prices.
This means you will receive interest income beyond the actual purchase price. The interest rate is usually based on the current commercial rates. This added income is a nice perk over just receiving the proceeds from the sale upfront.
When you fund part of the purchase price, you effectively stretch out the financial gains received from the sale of your business over a longer period of time. This means your taxable income from the sale is also spread out. While it is generally easier financially to spread out the taxes owed from the sale, consult a financial or tax advisor on how it will affect your specific tax situation.
Offering seller financing can help show your confidence in the business you’ve built and inspire confidence in your buyer. Much like any other major purchase, buyers are weary of getting a “lemon.” A willingness to stay invested in your business can help quell the fears a buyer may have about any underlying problems with the business and its long-term success.
When negotiating with your prospective buyer, you can use seller financing as a powerful bargaining chip, particularly if you are already interested in remaining involved with how the business operates post-sale. Seller financing can often be used in exchange for other concessions during the negotiation process.