Seller financing is one of the most popular ways to get paid by a buyer of your business when you list your company for sale. Partnering with a knowledgeable website broker can be one way to give you greater peace of mind about the process of selling your company so that you know what to expect. It’s no surprise that many buyers will prefer to add in a feature, that many buyers will want seller financing when buying a business.
If Payments Are Missed, What Are My Options?
But what happens if the person is no longer able to make those payments sometime in the future. This is of utmost importance to the person who is thinking about selling their business and is trying to decide whether or not it makes sense to allow for seller financing. While seller financing can definitely help to attract more buyers or even very interested buyers who would otherwise not be able to purchase your company, it’s also key to be prepared for the fact that you may have to deal with the problem in the future of them not making payments.
Often times, it is a business seller who asks this hypothetical question of what are the consequences for the seller when they default on their seller financing note. The seller is usually considering this question as part of the process of deciding whether or not to accept an offer that has some in with seller financing.
Is Seller Financing the Best Choice?
A seller might have multiple options in this particular situation, but a buyer does take on certain risks in allowing this. Sellers hate offering seller financing because it primarily comes down to the key issue of avoiding risk. Buyers love owner financing because it enables the business to pay for itself out of ongoing cash flow, it keeps the owner involved in the sale, is a sign of good faith from the seller, and requires less cash at the closing process. However, it can be difficult as a business seller to see why it makes sense to enable owner financing.
In the event that the buyer defaults, enforcing the payments can be an expensive way to go when you try to require this and get the person to have backup. Furthermore, a seller doesn’t know if the new owner will make business decisions that could affect the profitability of the company and, therefore, their ability to be able to make continuing payments on the seller financing agreement. One of the first thoughts from a prospective seller is how will I enforce payments on this note because I am not a bank and I don’t want to try to be one. The seller will ask questions such as;
- Is this prospective buyer truly competent enough to run the company?
- Can he or she be trusted not to try to avoid future payments?
- Are they knowledgeable enough to avoid critical mistakes that could destroy earning potential and the business overall?
The next phase to consider is whether or not you can get any collateral. Many owners are selling their business and are ready to move on to different pastures. If the buyer begins to miss payments, this is usually because the business is suffering in some manner.
Online businesses today sold through the help of a business broker are valued heavily on their cash flow, but the seller might have any loan secured with an asset that eventually loses its value. To deal with these kinds of complex issues that frequently come up when selling an online business, schedule a consultation with an experienced website broker.