This is the traditional financing method prevailing from the olden days. In the seller financing transaction, the seller is also acting as a lender for the purchase of transaction or transfer of ownership. The reasons for comments, why the prospects opt this method is that lender financing will take longer time than seller financing, and in the seller financing transactions, the seller is sharing the business risk after the close of escrow. This is good for the buyer; also, as this method allows closing the escrow faster than the lender loan, also the buyer can take sellers advice on time to time basis, if there is any drop of the sales. The seller assistance to the buyer is one of the greatest assets to the buyer as the seller build the business.
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The following are the commonest requirements for the Seller Financing (SF) or Seller Carry Notes (SNC) or Security Agreement (SA) in America.
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- Higher Down Payment : The seller will ask the buyer to put at least 50 to 60%
of purchase price I.e. Low to Value (LTV)will be 40 to 50%
- Seller demands for the monthly payments, interest rates, amortization period
are realistic in nature as the seller know the business returns to support the payments
- Seller file UCC or Lien on the Business and Business Assets such as Fixtures,
Equipment, Inventory and all other Tangible assets.
- Seller can also put a lien on the licenses / permits
- Lease Reassignments’: This is a part of an agreement with buyer and Land Lord, states. That in the event buyer fails to make the payments and the seller decides to take back, the buyer and Land Lord has to allow the seller to take the position of the business and allow continuing to take over the existing lease. This has to be written as a separate contract, and such a contract has to approve and acknowledged by the Buyer, Seller and Land Lord, before going to attach to the note or security.
- License and Permits Reassignments: This is a part of agreement for the seller carry note with buyer in the event, if the buyer defaults on the mortgage payments, all or some of the buyer licenses shall revert back to the seller without successor liability.
- Late Fee : The Seller will put a clause of late fee, if the buyer pays the monthly mortgage payments late beyond the stipulated time.
- Alienation Clause: This tells that in the event the buyer sells the business to the third party or changing of title or ownership to the third party, the seller can demand full payment of the loan amount, before going to do any changes.
- Additional Collateral: The seller may ask additional collaterals, such as buyer real estate and any assets to minimize the risk of the seller.
- Mostly, all these Security Agreement or Seller carry notes are prepared by the Escrow Companies with a standard format. With best interest of the seller and buyer it is good idea to hire an attorney and notify the terms and conditions for Seller Carry Note or Security agreement. They can prepare with a better legal wording to protect all the parties.
If you are interested, to know more about the seller financing and seller financing related questions, please email us at info@bizworldusa.com, or contact us on 415-234-8833, one of our approved third party Business Financial Consultant professionals will contact you.
