How to Buy a Business with Seller Financing

There are many ways to finance a business acquisition if you can’t afford the full purchase price. A popular option is seller financing, meaning that you pay the seller slowly over time.

Seller financing can be a great option for buyers who may not qualify for a bank loan. It can also help to speed up the process, as there is no need to deal with a third-party lender.

In this guide, we’ll explain what seller financing is and how it works. We’ll also discuss the benefits and drawbacks of using seller financing to buy a business.

What Is Seller Financing?

Seller financing, also called owner financing, is a financial agreement in which the seller of a business covers a certain percentage of the purchase price. The buyer then pays this back over time, much like a traditional acquisition loan.

It’s estimated that 60-90% of business acquisitions in the UK involve some form of seller financing. When buying a business, seller financing may be a good option if:

  • You can make a down payment but lack sufficient funds to cover the asking price
  • You don’t qualify for a bank loan, or want to avoid the hassle of the application process
  • You are prepared to make regular repayments with interest over time

As with any type of loan, you’ll have to sign a legally binding contract outlining the terms and conditions. It’s important to read this carefully and establish whether the repayment plan is sustainable for you.

How Does Seller Financing Work When Buying a Business?

Buying a business with seller financing can be tricky, as not all business owners are amenable to it. Handing over their business without full payment is a big risk for the seller. They’ll need to establish that you’re trustworthy and have the necessary skills to run the business successfully.

The seller has the right to check your credit history to decide whether to offer you financing. If you have a lower credit score, you may have to make a larger down payment, pay a higher interest rate or secure the loan with collateral.

Once you’ve agreed on the terms of the loan, you’ll put together a seller financing contract. This can be done with the help of a professional business broker such as Chelsea Corporate.

What Does a Typical Seller Financing Contract Look Like?

Every seller financing contract looks different. The terms may depend upon factors such as your credit history and how much the seller is willing to lend. A typical seller financing agreement will contain details of:

  • The deposit: this is the amount that you must pay before the sale is finalised
  • The total loan amount: typically between 5% and 50% of the business’s total selling price
  • The interest rate: this is usually around 6-10%
  • The term length (how long it will take you to repay the loan in full): normally 3-7 years
  • The repayment schedule: you’ll usually make a payment each month, though the amount may vary if business is seasonal
  • Non-payment conditions and collateral used to secure the loan

As the buyer, you have the right to negotiate the terms and conditions with the seller. If there’s anything you don’t understand, speak to your business broker or solicitor.

What Are the Benefits and Drawbacks of Seller Financing?

The obvious downside of owner financing is that you risk losing the business if you default on repayments. It can also be harder to find an owner-financed business for sale, as some sellers insist on payment in full.

However, seller financing boasts many benefits over traditional bank loans. For example:

  • The lending criteria aren’t as strict, so you’re more likely to be approved
  • Avoid a lengthy, cumbersome applications process
  • No third-party involvement means the acquisition takes less time to finalise
  • Interest rates are usually lower
  • You have more freedom to negotiate the terms and conditions

Not to mention, because you’re paying the seller slowly over time, they have a vested interest in your success. This means they will usually be happy to offer free advice and guidance on running the business.

How to Find a Business for Sale with Seller Financing

If you’re looking to buy a business with seller financing, Chelsea Corporate can help. We are UK-based business brokers specialising in on off-market mergers and acquisitions. Through us, you’ll have access to an exclusive database of off-market businesses that you won’t find anywhere else.

Get in touch today and we’ll match you with a profitable, successful company that meets your budget and requirements. If seller financing is a priority, we’ll help facilitate an agreement that works for both parties. It’s our mission to make buying a business as smooth and stress-free as possible.

To discover what Chelsea Corporate can do for you, contact us today. Fill in our enquiry form, call +44 (0) 20 3011 1373 or email info@oldchelsea.fusionanalyticsworld.com.

How to Finance Buying a Business

Running a company can be an exciting and rewarding venture. Though you can start your own, buying a business is an easier (and safer) option. From the moment you take over, you’ll have an established customer base and presence in the market.

Buying an existing business can be more costly than starting your own. If you want to buy a successful, reputable business, you may need to look into finance options. Loans and investments can help you fund the acquisition.

In this guide, we’ll discuss how to finance buying a business and explain the most popular methods. We’ll also share some tips on finding a profitable business for sale.

Finance Options to Buy a Business

If you’re wondering how to raise funds to buy a business (UK or overseas), you have several choices. The most popular way of raising finance to buy a business is to take out a loan. However, you can also look into seller financing, investments and crowdfunding.

Each method has its own benefits and drawbacks, and some are riskier than others. Factors like your credit score and the amount of money you need can affect which options are available. It’s important to explore each possibility and consider which would work best for you.

Business Loans

A common way of buying a business with no money down is to apply for a loan. Business acquisition loans are specifically designed for financing the purchase of an existing company.

  • Unsecured loans do not require collateral. However, you will need a good credit rating to be approved. The amount you can borrow may be based on the business’s expected cash flow.
  • Secured loans, or asset-based loans, are backed by collateral (e.g. commercial property or equipment). These are used for borrowing larger amounts, and often have lower interest rates than unsecured loans. However, if you default on repayment, the lender can seize your asset(s).

You can apply for a loan through a bank or a private company. Each lender will offer different interest rates and repayment conditions. Do your research to find one that works for you.

Seller Financing

With seller financing (also called owner financing), the current owner lends you some or all of the funds to buy their business. Both parties agree on the repayment terms which are documented in a legal contract. This is a useful form of finance to buy a business if you don’t qualify for a bank loan.

In most cases, you will need to make a down payment. Most sellers would be reluctant to loan you the entire purchase price. However, you won’t need as much cash as you would if you were buying a business outright.

Equity Investments

An equity investment is another popular form of funding to buy a business. This involves partnering with a private investor who partially or fully funds your purchase. In return, the investor will get a share in the company and its profits.

Some investors will want a say in how the business is run, while others act as “silent partners”. This means that they’ll invest money but won’t be involved in any other way. Investments can be incredibly useful, but they are difficult to obtain. You’ll need a watertight business plan and a good track record.

Crowdfunding

If you can’t get a loan or investment, crowdfunding through sites like Kickstarter is a great alternative. A crowdfunding campaign allows consumers to pledge money towards your business venture in return for an eventual reward. This may be a discount, free product or early access to a service.

While typically used for start-ups, you can set up a crowdfunding campaign to buy an existing company. This is a great way to spread brand awareness. It’s also less risky than a loan, as you only receive the funds if you reach your target. However, it may take a long time to raise the required amount.

How to Find a Business to Buy on Finance

Once you’ve decided how to finance buying a business, the next step is to find acquisition opportunities. When looking for a business to buy on finance, consider:

  • The type of business. A company with tangible assets will be easier to finance than one without. Independent businesses also tend to be more affordable than franchises
  • Size. Buying a small business on finance will be easier than acquiring a larger company. Smaller loans are easier to obtain and won’t require as much collateral
  • Location. A city-based business will be more expensive than a company based in a small town or rural area
  • Reputation. Lenders and investors will be more willing to finance an established brand with a loyal customer base

You’ll always find the best deals if you buy off-market. This is because you won’t face competition from other buyers, and sellers don’t have to pay extortionate fees. Speak to an off-market acquisitions specialist to get started.

Thinking of Buying a Business? Contact Chelsea Corporate Today

If you’re ready to buy a business, UK-based brokers Chelsea Corporate can help. We specialise in off-market business mergers and acquisitions, and we work for the buyer, not the seller. We’re committed to finding you a golden opportunity at a fair price.

With Chelsea Corporate, you’ll have exclusive access to our database of off-market businesses for sale. We’ll match you with a profitable company in your chosen niche and help negotiate a great deal. What’s more, we’ll handle all the hard work to guarantee you a smooth, stress-free acquisition.

To find the perfect opportunity, contact us today. Fill in our online form or call +44 (0) 20 3011 1373. Alternatively, you can email info@oldchelsea.fusionanalyticsworld.com.