May 25, 2023

Seller Financing in a Shifting Economy

Read More

Seller Financing in a Shifting Economy

Unconventional Acquisitions

May 25, 2023

Business buyers taking action

Hey there, business buyers!

In case you haven’t noticed, things are a little wild economically.

But if you’re thinking that makes it a bad time to buy a business, we’d like to politely inform you why that may just be completely backwards.

BizBuySell recently released their quarterly report. They interviewed hundreds of business brokers from across the United States. And 70% of those industry experts believe that seller financing is a key factor in the current market.

That’s right. Experts are encouraging seller financing. If that doesn’t sound like music to your ears, you probably don’t know enough about seller financing.

Let’s dive into why it’s beneficial for buyers and sellers both and how you can actually get your next deal seller financed.

In 5 minutes or less:

  • Why seller financing makes sense in today’s market
  • Why YOU should want it
  • Why your SELLER wants it
  • How to persuade your seller
  • $550k SF deal from our Mastermind

Why seller financing makes sense in today’s market

There are two main reasons why seller financing is taking the limelight right now: rising interest rates and limited options for financing overall.

High interest rates

One compelling reason to embrace seller financing is today’s soaring interest rates.

Traditional lenders (like banks) often charge steep rates, significantly increasing the cost of acquiring a SMB.

By using seller financing, you can avoid these high interest rates. This could save you thousands of dollars in the long run.

Limited financing options

Financing options can be limited, especially for buyers who may not meet the stringent requirements of traditional lenders.

Seller financing offers an alternative solution, providing funding that may not be available through other channels.

In a market where banks tighten access, seller financing opens doors.

Why YOU should want it

Seller financing is one of the best deals you can get in acquisitions.

There are three key reasons.

1. Competitive edge. In a market like this one, you aren’t the only investor struggling to fund deals.

By embracing seller financing, you gain a competitive edge by accessing funds traditional lenders might not provide.

2. Flexible terms. Banks don’t leave room for negotiation. Can’t play by their rules? No funding for you. Seller financing gives you back the power.

You can work directly with the seller to structure repayment schedules, interest rates, and other terms to align with your financial goals and cash flow capabilities. Craft the financing arrangement that suits your needs.

3. Streamlined approval process. When you take the lending institutions out of the equation, you also take out their red tape, bureaucracy, and lengthy approvals.

Seller financing is a more streamlined path. You negotiate terms directly with the seller.

Why your SELLER wants it

One of the main objections we hear from prospective buyers on seller financing: “Sounds great for me, but no seller would ever agree to this.”

But there are actually many reasons why seller financing is a great deal for the seller, too. Let’s go over four of them.

Attract qualified buyers

In some markets, institutional financing options can be hard to come by – even for experienced, quality buyers.

The proposition of seller financing makes a deal stand out. The business becomes more attractive, which broadens the pool of potential buyers.

Seller financing actually increases the chance of a successful sale. This is especially important in a world where 80% of owners that want to sell can’t.

Faster sales and smoother transitions

Seller financing can expedite the process, avoiding the delays and uncertainties caused by traditional financing.

The sale is more efficient, and sellers can feel more confident about the transition.

Potential for higher selling price

Offering seller financing can give a seller a bit more leverage in a deal.

Buyers are willing to pay a premium for the added flexibility of seller financing. Since it’s so attractive to buyers, sellers can justify a higher valuation for the business… And so, command a higher selling price.

Potential for tax advantages

Most sellers want to reduce their taxes when selling their business, or delay paying these taxes.

An accountant can help the seller learn their specific tax benefits from the business’s sale, but seller financing almost always leaves them on top.

Some sellers will be more comfortable with the idea of having a continuous stream of revenue rather than a lump sum. With a lump sum, they’d need to find a place to invest it to get the same type of consistent return they would with seller financing.

How to persuade your seller

Sure, there are loads of benefits for an owner who offers seller financing. But the objections still bear a kernel of truth: not every seller will be convinced right away.

The success of seller financing comes down to you – your persuasion, your rapport with the seller, your trustworthiness.

Here are some tips while selling your seller:

1. Sell the benefits. With seller financing, the tables turn. You must sell yourself and the idea of SF. Clearly communicate the benefits. Paint a vivid picture of the increased marketability, higher selling price, speed, and extra interest.

2. Showcase your capability. If the seller attaches their future finances to you, they deserve to know you’re not a total schmuck.

Share your track record of success, relevant experience, and skills. Discuss in detail your dedication to the business’ long-term growth. Describe your strategy, and instill confidence in your seller’s mind.

3. Offer a win-win scenario. A seller is more likely to accept the deal if they understand that it’s mutually beneficial.

Highlight the reduced risk of default since the seller retains a vested interest in the business’s success. Assure the seller that their financial goals can be met while enabling you, the buyer, to acquire the business on favorable terms.

4. Provide clear, transparent terms. Transparency is key. Outline the terms of the financing arrangement: loan amount, interest rate, repayment schedule, and any collateral or guarantees. Make sure each item is clearly stated.

Be prepared to address concerns and provide reassurance that you will honor your financial obligations. Presenting a well-defined and transparent proposal will alleviate the seller’s doubts.

$550k SF deal from our Mastermind

Eric is the perfect example of everything coming together on a seller financing deal.

He keeps it real – not all $800k of his renovation biz purchase was paid for on the seller’s dime. Only about 70% of it.

The other 30% was made up of around 5 different loans, all from different lenders. A true testament to how tangled the red tape of financial institutions can get.

So how did Eric swing a half million+ in a seller’s note? Let alone with 0% interest??

It all comes down to how he communicated with the seller.

Here’s what Eric did right:

  • He negotiated. The beauty of seller financing lies in its flexibility. Eric took full advantage of this, coming to the negotiation table prepped and ready.
  • He made it a win-win. What did Eric need? A fair price for the issues he was about to inherit. What did the seller need? A regular drip of cold, hard cash for his next investment (ideally without a bunch of interest rate math muddying up the numbers).

    To both win, Eric got a 0% rate on payment, and the seller got an extra $50k on price.
  • He kept the numbers clear and transparent. He reverse-engineered the deal with the owner. If the bottom line was that seller needed $X per month for Y years, then Eric was happy to oblige.

So, my ambitious business buyers, embrace the power of seller financing. Unleash your persuasive prowess and pave your way to financial freedom and entrepreneurial success.

Instead of seeing road blocks in the current market, see opportunity. In the realm of small business acquisitions, where the rules are constantly shifting, seller financing is your secret weapon.

The stage is set for you. Go claim your role.

This Week in Biz Buying:

🥅 Never give up: how many emails & LOIs per 1 acquisition?

📝 A couple lessons from the biggest mergers of the last 50yrs

✈️ We have liftoff: details of this recent $2.5B aerospace deal

🐦 Twitter’s first acquisition under Musk – a “job-matching platform”

🎮 If you have the need to get up to speed on video game acquisitions

Closing Meme:

Contact Us

In A Nutshell, Tell Us About Your Goals

More To Explore

Mindset Makeover: Overcoming Entrepreneurial Challenges In Business Acquisitions

Business buyers taking action Hey Biz-Buyers, I can think of only one good excuse why you shouldn’t pursue business ownership: You don’t…


June 06, 2023

From Dreamer To Achiever: Conquer Small Business Ownership In 4 Steps

Business buyers taking action Good afternoon. Picture this: You're sitting at a hipster café, listening to a genre of music…


May 05, 2023

Breaking Free From The 9-To-5 Grind: A Guide To Small Business Acquisition

Business buyers taking action Good afternoon, In our business-buying community, most members aren’t driven by a passion for buying a…


May 05, 2023