Chapter 20
Seller Financing
Essential Idea: Looking to Buy a Business? Get the Current Owner to Finance Some or All of the Purchase
Dan Dubinsky (name and some minor facts changed for privacy) has owned a couple of auto body shops for 20 years, and for at least the past three, has planned on selling the business and retiring to the South of France with his wife. Dubinsky figures that the business is worth about $250,000 and that that would make a nice nest egg, along with his other investments.
But the changing economy shifted his plans.
Dubinsky put his business up for sale, and to entice buyers, offered to finance up to 40 percent of the purchase. Although he is not thrilled with taking $100,000 less up front, he also knows that it makes the sale of his business much more likely. Dubinsky realizes that he will have a much better chance of finding a qualified buyer in this climate if the purchase is made easier by seller financing.
Certainly this is not a new or radical idea. By some estimates, up to 75 percent of all small business sales include some degree of financing on the part of sellers. The reason is obvious: Most buyers do not have the capital resources necessary to purchase outright, or even finance a majority of, a successful small business. These days, banks do not offer anything close to the 100 percent financing they offered for business purchases back in the late 1990s. And so between tighter bank restrictions and less fluid buyers, owners are increasingly forced ...
