In today’s economy it is about the only way to sell a business and get full value. Banks, in general, are not willing to finance a business without a large down payment and other personal collateral. Back about 1986 we went through the same situation with the banks. That is when owner financing because the best way to sell a business. Offering owner financing does not mean you have to accept an offer unless you are comfortable with the buyer. I usually suggest one-third down and two-thirds owner financing. There are two other advantage that you need to consider. The first is that you are spreading out the money, usually over five years, which lowers your income tax liability. The second is the interest rate you will receive on owner financing. You should be able to get five to six percent. This beats the heck out of the one to two percent you can get today on a CD.
On a $600,000 sale that means the buyer has $200,000 invested and with that much he cannot afford to fail.
If you were to ask for the full $600,000 at closing you would not have many, if any, buyers willing to look at the business because with $600,000 they can buy a business in the $2,000.000 price range. Even if you do get a buyer interested, be prepared for an offer in the $300,000 to $400,000 range. The main thing you really want is to have potential buyers look at your business and owner financing is the best way because it shows you have faith in your business continuing to be successful.
In the three decades that I was an active broker I only had one owner financed deal go bad out of several hundred transactions. In that case the owner accepted less down than he should have and the buyer had no working capital reserve. I advised him against accepting the offer but he had an opportunity that he was afraid he would lose if he waited. By being in first lien position he was able to foreclose and with the down payment, payments received, and the liquidation he received over eighty percent of the purchase price which was much more than he would have received if he could have found a cash buyer. A good broker should tell you the pitfalls in any offer he presents.
If you have a question you can e-mail it to me and I will be happy to respond.
