Seller Financing is an important ingredient in selling a business, or buying a business, especially in the current market. Commercial loans are practically unavailable for small business acquisitions. Even SBA Loans, those provided by banks with U.S. government backing, are few and far between. Only a few banks, like Wells Fargo Bank, are still doing SBA Loans, and they are being very selective.

This credit crunch leaves two ways to buy a small business, using buyer cash plus seller financing. The seller financing terms will depend upon the business, as well as the buyer and seller.   Key aspects include the down payment, loan amount, repayment term, interest rate, and amortization schedule.  Most important to the saleability of the small business is the down payment.

The down payment is how much cash the buyer will pay the seller.  This is above and beyond the cash that the buyer must set aside for working capital, living expenses and safety margin.  Does the buyer have enough cash for the down  payment to satisfy the seller?   First, the seller has to pay his broker’s fee and other closing costs from the down payment.  Beyond that, the seller wants to help the buyer, but also make sure that the buyer has invested too much to “walk away” from his obligation.   The business must provide enough cash flow to pay off the loan and support the buyer’s income needs.  As a small business broker in Seal Beach, Orange County, Southern California, I encourage my seller clients to strive for at least a 50% down payment from the small business buyer.

Alan Lippincott is a business broker and BestSoCal owner who welcomes calls to (877) 420-6478 and Email Inquiries.  His comments should be regarded as general in nature and not taken as advice without a personal consultation and signed agreement.