It is important for both Seller(s) and Buyer(s) to understand the pros and cons of seller financing. There are both risks and returns involved; however, both Buyers and Sellers may benefit from seller financing when it is understood and properly executed. Below are view points from both Buyer(s) and Seller(s):

Buyers (even if they have the funds available) like the idea of seller financing because:

1. Increase Cash Flow: Sellers often offer 1/3 to 2/3 of the sale price as seller financing (or even higher). This allows the buyer to use their cash for other investments.
2. Seller Faith: Calms the buyers because they understand that the seller is confident in the future of the business.
3. Seller good attitude: After the sale, the seller may be more attentive and genuinely helpful.

Sellers like the idea of seller financing because:

1. Higher Price: They typically receive 20% higher sale price when financing is offered.
2. High Return on Investment: The interest rate they charge may be up to 10% or higher!
3. Risks and Returns: If, for some reason, the buyer does not work out, then they may pocket the cash already received, take over the business, build it back up and then sell it again.
4. Faster Sale: They do not have to wait weeks or months for other loans to be set up.
5. Speeds up the process: Opens more doors to more buyers: other lender financing may not be available.
6. Tax advantages possible (consult your tax advisor).
7. Added Security Provisions:
   1. Personal guarantee from buyer

This entry was posted on Sunday, July 6th, 2008 at 7:29 pm and is filed under Ask the Expert. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.