A purchaser may not have the financial wherewithal to fund, or obtain a loan for, 100% of the purchase price for your business. The purchaser may therefore request that part of the purchase price be paid in the form of seller financing. This often occurs when the purchaser obtains an SBA loan to fund part of the purchase price. Often, partial seller financing is the only way that a deal can get done. You must, however, protect yourself. Seller financing means that immediately after you sell your business, your role changes from seller to lender. To protect your loan, you should obtain security (collateral) and appropriate personal guarantees. The purchaser’s lender, who will provide the majority of the purchase price funding, will insist that you subordinate your loan position to the lender. Although this subordination is standard, you should not accept “standard” subordination terms presented to you by the lender, as the terms could unduly interfere with your ability to be paid. Last, neither you nor the purchaser want the purchaser to default on seller financing. You should therefore ask the purchaser to share its cash flow projections with you, which should show that the cash flow of the company will be sufficient to repay the lender, ordinary operating expenses and your loan.
ABOUT GLENN D. SOLOMON
Glenn D. Solomon Esq., is a principal at the law firm of Offit Kurman and has provided counsel to businesses and business owners for more than twenty-five years, with extensive experience in the purchase and sale of businesses, structuring ownership agreements, and advising companies in financial distress
ABOUT OFFIT KURMAN
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