The short answer is absolutely YES! The basic reasons, good and bad, for seller financing have not changed, but the urgency and need for this has become much more important now during the Covid pandemic in order to get an ownership transition accomplished.
There are many reasons seller financing is far more advantageous than not during these pandemic times. Let's review some of those reasons both PRO and CON:
3rd party lenders (Banks) typically all want to use the SBA guaranteed programs which typically means:
Seller financed transactions have these major advantages:
THINGS TO CONSIDER OR TO DO:
With a most likely recession on the horizon here are some things to consider having or doing in any transaction of this type:
Make a good credit decision on the buyer with credit and background checks on the buyer. Credit score probably north of 725-750 and a strong buyer balance sheet with adequate liquid assets is necessary for many reasons.
As most transactions are a sale of intangible assets consider a personal guarantee on the note and possibly have the buyer pledge additional collateral
Receive an adequate down payment in the 25-35% range
Buyer will be more comfortable if there is a right of offset in the seller's note in case there might be some issues that arise in the future and the payments can be reduced or the principal reduced for unforeseen matters that might arise.
Seller should educate themselves on the benefits of a seller financed deal so that they are prepared to present this to a buyer as a top action item and one that can possibly make the deal and cut the time to close down by months.
Seller financing will give a buyer a much better feeling of comfort in buying a deal that the seller is willing to finance as relationships and transparency are becoming more important.
Control of the transaction is so important to its success and many if not most times deals fall apart at the lending stage.
Valuations will be an issue in the near term due to the current pandemic and many if not most lenders will be somewhat unsure about where to go with this. It becomes important to determine what the cash flow was last year and make concessions or considerations in the terms of the note in case the economy is shut down again going forward.
Seller financing has always been important in getting a transaction done. Now during these unusual times, seller financing is even more warranted to selling a business. For more information on how to sell your business, contact Business Brokers of Texas.