A buyer with 100% cash is rare. Some sort of financing will most always be needed to close the deal. There are various options for financing covered below with the understanding that buyer qualification is the key element. The ability to finance a buyer purchase is often the make or break point to closing.
Let us dispel one myth; the misconception that the owner HAS TO hold a note or mortgage on the business to get a deal closed. This is not true, and it totally rests with each owner’s preference. While we contend that selling a business with some amount of owner financing makes it slightly easier to sell, we always advise owners to speak with an accountant about the pros and cons to holding a loan on their business.
Three types of financing…
- Owner-held financing. There may be some tax benefits using this approach.
- Local bank loans. Bank financing is very difficult for a buyer to secure in the small environment, since banks are risk averse. Bank lending is the primary reason for the misconception that lender financing is difficult.
- SBA financing through third party lending sources. This is the primary lending source used to fund buyers of small businesses. These lenders are specifically in business for small business lending. Most business buyers do not know of these types of lenders have the contacts to use them successfully.
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