Should I really offer self-financing to a potential buyer?
The short answer is yes, if the numbers makes sense you should definitely consider it. The way that you need to look at it is that most people do not have a large sum of cash saved up and therefore are going to have to apply for conventional financing. SBA loans are notoriously difficult to get and require strict adherence to some hard to meet guidelines for both the buyer and the seller. So, let’s just assume you found the perfect potential client to buy your business and they have the highest personal credit score the bank has ever seen with experience enough to run a fortune 500 company. Are you confident that you have completed all your own bookkeeping to a “T” for the last 5 years? Do you really want to risk turning this amazing buyer off just because the bank does not like a certain aspect of your business or decides that it is too risky and therefore they are going to charge some ridiculous interest rate? Personally, I never like leaving these things up to fate alone, especially when some banker is the one making the judgment call regarding the approval decision.
But what if they don’t pay?
Then you either take the business back and/or sue them. Easier said than done, but it really is not much more complicated than that. Remember that this new buyer is going to have a heavy commitment both financially and emotionally to this business succeeding. They are going to do everything within their power to ensure that they prosper, and being the expert that you are means that you can offer them some additional guidance when and if they are struggling. With that being said, failure is always a concern and in a worst case scenario you simply have to recoup everything that you can as quickly as possible. If you are forced to take the business back you can put in some hard work to get the operations optimized once again, and then offer it up for sale all over again. Not an ideal situation but it could be much worse. It is hard to getter a better return even when placing all of your money in stocks. The biggest difference is that there is nothing left when the stock value drops there regardless of how hard you work.
How should I decide to approve them or not?
The first thing you should do is run through a mental “doomsday scenario”. If the world hypothetically ended tomorrow and you never received another payment from this buyer, would you be OK? If so, then proceed to the next step. If not, then you need to give it some serious thought. In the latter situation your decision is going to be heavily dependent on the specific individual applying, and this is where it gets tough because you honestly never know how someone is going to perform beforehand. Do all the research that you want; pull credit scores or get a 10-page bio on the applicant, but the truth is that it will only help to weed out the people that have no business even thinking about being entrepreneurs. People are unpredictable creatures and will never cease to surprise, therefore try to make your decision based primarily off the financials whenever possible. If the numbers work, there is not much else that you need to worry about short term.
How much quicker can I expect my business to sell?
That number is impossible to quantify, but it has been estimated that businesses that offer owner financing have an approximate 25% better chance of selling in general. You may ask why? Well, a lot of people see a staggeringly large number for the sales price and are scared away immediately, never dreaming that they will ever be able to own a business that costs that much. But, when they see a lower down payment figure they may decide it is worth their time to reach out and to get more information about the business. Even if they do not qualify to purchase the business themselves they may have other connections willing to help them out or that may be interested themselves. It creates some positive buzz and momentum that sellers so desperately need in the listing process. Otherwise, the business is just going to sit there and grow stale in hopes that an interested high net worth investor is going to just come along and buy it.