Everywhere you turn, there is some amount of information related to the pandemic or other social issues. It should come as no surprise that COVID-19 has affected every other aspect of our lives, including our jobs and businesses. With all the negative changes, some positive changes have also come. How, you might ask? In a season with much economic uncertainty, the government, private banks, and even business sellers often provide aid to those who would otherwise suffer without help. In this case, we are focusing on seller financing.
What is Seller Financing?
Seller financing, like the name suggests, is when a buyer-seller relationship extends beyond the direct sale of a business. It allows a seller to create an arrangement with a buyer who does not have the cash or lender resources to make an offer. In fact, studies show doing this increases confidence in the success of your business and means you can sell at a higher asking price. In many cases, requesting a cash offer means you likely will only sell at 70% of asking.
In a seller financing dynamic, your buyer will feel confident that you believe your business will do well enough without your management. In essence, you believe that new management will continue to profit and have the means to make those monthly payments. On the other hand, demanding a cash offer might appear as though you are trying to exit a suffering business as quickly as possible – especially in this climate. If that is the case, you are less likely to sell.
The Benefits to Seller Financing
On top of building confidence, you are adding to your wallet. With seller financing, interest rates mean you are getting more than your selling price. A small price to pay for a buyer who otherwise would not be able to make that cash offer. All-in-all, this is a win-win relationship for buyers and sellers because they both benefit from the arrangement.
Do not let COVID-19 block your plans to buy your dream business in 2020. And you certainly, should not feel like you need to hit pause on your business sale. Seller financing could be the game changer regardless of which side you’re on. If you are considering making the move to buy a business, now could be the time to make that change. And if you are looking to put your business on the market, now could be the time to make the move and consider offering seller financing. Allow a Houston-based Transworld Business Advisor to walk you through the process of buying or selling a business with seller financing. Contact us today!