Mergers & Acquisitions Advisory

A Neumann & Associates, LLC

November 13, 2016

What business owners and buyers need to know about seller financing

By Achim Neumann

what-business-owners-and-buyers-need-to-know-about-seller-financingWhen a business owner moves to sell their first business, they are often met with frustration when potential suitors lack the funds they need to afford the asking price.

The truth is, most buyers aren’t able to purchase a business using 100% of their own funds, necessitating some sort of financing.

However, banking institutions don’t hand out money as readily as they used to, a trend that has led to a rise in seller-initiated financing. Before any company owner looks to offer a similar arrangement, they should heed the following advice.

Be vigilant

When a business owner decides to extend financing to a buyer, there is a lot of due-diligence that would normally be done by the bank that will have to be shouldered by them.

They’ll want to deep dive into the buyer’s credit history, financial reports (if they are being courted by another company), and other bellwethers of financial trustworthiness in order to sort out if an entity can be trusted not to default on their financial obligations.

Sellers will want to sure to insert language into any contract that will allow them to take back their company within 60 days if the new owner is unable to make payments.

Is it a mutually beneficial arrangement?

The best deals are ones that benefit both sides of the sale. Buyers should know that when a seller is willing to arrange a loan themselves, the enterprise is one that the seller knows will make money.

In this situation, the buyer gets a proven business that will allow them to turn a profit very quickly, and the seller gets to cash out while being confident that their creation will be in good hands.

Terms can vary greatly

Terms of a seller financing arrangement will vary from the consistent loan packages that banks offer. The key factor that determines the length of the repayment period is the proportion of the purchase price that is fronted by the seller. Generally speaking, the smaller the share of the loan the seller provides, the shorter the term will be.

Conversely, the greater the proportion of a loan that is covered by the seller, the longer it will take to pay back. Sellers should aim for the shortest term possible to minimize risk.

The seller will have to deal with buyer defaults themselves

Speaking of defaults, the risk of having of deal with one is considerably higher when a seller decides to offer financing to buyers.

Banks are notoriously conservative when it comes to extending loans for a reason: they are in the business of making money. If history is any guide, there are few sectors that are as efficient at the process than they are.

When a buyer can’t find a conventional funding source to fund their ambitions, they will turn to seller financing, regardless whether they are a good credit risk or not.

As such, it is important for the seller to trust their purchaser implicitly before loaning them the money they need to buy the business.

About A Neumann & Associates, LLC

A Neumann & Associates, LLC is a professional mergers & acquisitions and business brokerage firm having assisted business owners and buyers in the business valuation and business transfer process through its affiliations for the past 30 years. With an A+ Better Business Bureau rating, the company has senior trusted professionals with a deep knowledge based in multiple field offices along the East Coast and has performed hundreds of business valuations in its history. The firm’s competitive transaction fees are based on successfully completing transactions. For more information, please contact A Neumann & Associates at 732-872-6777 or

Comments are closed.

Any questions? Please contact us at 732-872-6777
Call Now

Client Testimonials

“ I appreciate your diligent approach to screening buyers and sellers as well as the high quality CIM that you produce.”

Andrey O, Investor

“Finally enjoying retirement after recently selling my business using the services of A Neumann & Associates. Joe Oddo provided the conduit to a successful transaction. Joe knew when to inject input and when to simply listen and allow the buyers to vent, step back and regroup. The outcome met our expectations and got us to the finish line, which included my staying with the company six months in order for the buyers to get their footing and keep our workforce in the loop. He helped at every step by providing his expert guidance & resources. Thank you!”

Emily Parker Myers, Co-Owner - Myers McRae

“I had been in touch with Karin and Gary from A Neumann & Associates regarding some opportunities and was looking forward to meeting with them. Hence, when they organized a seminar in Princeton, NJ, I was quick to sign up. The seminar was very informative as the team walked the attendees through various scenarios and referenced real life buying/selling situations they had been through. The sessions by Gary, Karin and Achim were crisp and focused and brought clarity to potential seller and buyers. I strongly recommend the team and look forward to continue working with them.”

Gaurav Tyagi

“Thank you for your Event on "How to value, Sell, and Buy A Business for Maximum Profit" and the insight into ANA’s approach on what is involved in the Business Exit for sellers. Garys Hervieiou's "Business Valuation", Achim's "Deal structure" presentation and Karin’s "Preparing the Package" are real street knowledge shared. They answered attendees questions which makes it more interesting for learning from others. Great for small businesses like us. The presentations were totally worth our time and travel for the event to Princeton, NJ from Rockville MD. Ravi Bhutani, President, CIPS”

Ravi Bhutani

“Gary, this is to thank you for an excellent job done in selling our business. We could never have done it without your professional expertise, dedication and time put in without reservation to make it happen. We will gladly and highly recommend you to anybody in our position.  It was a pleasure to work with you.”

Pat Iammatteo, Owner

“Your vetting is simply outstanding, among the best I've seen from a broker.”

Eric H., Investor

“I recently contacted A. Neumann and Associates about getting a valuation of my business done. I spoke with Marc, who explained the process in detail. After meeting with Marc in order to get a clear understanding of my business, and what I was hoping to accomplish. His patience in answering all my questions and his knowledge of the proper way to market my business gave me great confidence that this is the firm I will be using to sell my business for max value. Working with Marc at A Neumann & Associates was very easy and professional. I did not know all that was going to be involved in selling my business but they helped me through the process. What I thought was going to be a just another one of those pushy sales companies was just the opposite. Polite, knowledgeable, and a pleasure to talk to and deal with. I highly recommend this firm to anybody who wants to sell now or down the road. Marc not only knows his stuff, but actually is a real nice guy.”

Double Diamond

“Used A Neumann & Associates to sale my business. could not imagine having done it with out the patience and experience Gary provided. Thanks Gary,”

Dennis Frazier

“Working with Marc and his company was a pleasure. What I thought was going to be a just another one of those pushy sales companies was just the opposite. Polite, knowledgeable, and a pleasure to talk to and deal with. Marc handled most of the interaction and he has one of the greatest demeanors. Again, it was a pleasure working with him and his firm.”

Douglas DiCeglio

“I recently completed an acquisition using A Neumann & Associates. Tony Valentino was very helpful and accessible during the entire process. They do a thorough job vetting both parties and got us to the finish line.”

Srini Mudambi
view all testimonials

Contact A Neumann & Associates, LLC

If you are considering selling your business, please contact us to learn more about our comprehensive service spectrum. Our experienced professionals will answer all your questions about selling a privately held business in complete confidentiality. Please fill out our contact form, or call us at 732-872-6777. We will contact you directly and will never identify ourselves to your employees.

call us now
Contact Us for a Free, Confidential Consultation

Experienced M&A Advisors available

Full Name
Email Address
Phone Number