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There are many business acquisition and real estate sales that involve a seller note. It is a good option. It provides flexibility for the buyer, generates a little more income for the seller, and makes a deal happen! SBA loans now typically require that a seller hold a seller note of some kind, especially when there is Goodwill involved in a business acquisition. A seller note is simply a form of loan or debt used in small business acquisitions or commercial real estate where the seller agrees to receive a portion of the purchase price as a series of installment payments over time rather than at the time of the sale. Seller notes are very common in small business acquisitions and commercial real estate sales. Good seller financing is a major plus factor in many small business acquisitions, and frequently translates into a higher selling price, quicker sale than an all-cash deal. Seller notes can also earn the seller a little more due to interest income. Many seller notes are interest bearing loans that are fully amortized over an agreed-upon period following the business purchase. In some cases, the business buyer and seller may agree on deferred or interest only payments initially in order to lessen the cash flow pressure on the buyer during the business ownership transition period. Often with SBA loans seller notes are put on full or partial-standby for a time period. Typically sellers don't have much protection or security to getting paid with seller notes. However there are now new innovative programs that protect the seller, there can't be a delinquent payment, protects the seller in the case of defaults, allows passive income, and ensures quicker payoffs if the business does better. Also these programs will enable a business (or buyer) that is not able to get bank financing to be sold with a third-party reporting in place, a structured payout and seller/buyer protection. Often there is a business for sale stuck in a situation where the deal can't get bank financing calls for a seller note solution. This solution can be improved with these dynamic programs due to their agreements, reporting, flexibility and structuring of the deal. When seller notes are used, often borrower/buyer and seller can likewise benefit from multiple notes rather than one large note. For instance, if a business is sold and has some bank financing and a seller note for $100,000. Instead of having one large $100,000 note, use four $25,000 notes instead. This allows more flexibility. If a bank requires the notes to be on hold or standby, it is easier to later go back to the bank and ask if one or two smaller $25,000 notes will be released rather than the single large $100,000 note. Another option can include the business seller selling the note to a buyer (or even a third party). Let's say a buyer now owns the company and has some excess cash. He can buy a note from the seller at any time without waiting for the standby period to end. The bank is still happy because the note is still in place, the seller is happy because he got some of his money, the buyer can sometimes get tax advantages and all this is made easier if the note is a smaller, more affordable amount. Notes can be sold for cash, providing the seller with immediate cashflow rather than waiting for payments. Educated sellers can now use notes to make the deal happen, structure a deal to help all parties, and use third-party programs to protect their holdings and future payments.
Article Source: http://www.search-the-world.com/articles
Jim Frey is a former VP of a billion dollar bank and currently a commercial loan broker, speaker, author. Jim enjoys helping entrepreneurs find alternative ways to finance projects. Get his free ebook at www.doughforthedream.com or listen to podcasts www.doughforthedream.podomatic.com
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