Seller Financing - Acquire.com Academy

In this video, I'm going to be going over how seller financing could potentially save your acquisition deal from disaster. So how seller financing essentially works is you agree to a deal with a seller where you're going to allow them to fund the business over a period of time. Now that can be through multiple different ways, but it's typically through the revenue of the business. So this is really attractive to a buyer because getting loans for acquisitions is very difficult. So you could, as a buyer, you could be waiting on a bank for financing a loan from the Small Business Association. And so that kind of stales the deal structure. And with this, you can essentially attract a lot more buyers to your startup. And this is typically one of the most common deal structures I see on Microacquire. So what is seller financing? In some ways, seller financing is just like any financing. Instead of selling your company for a lump sum, you agree to let the buyer spread the payment over a number of years after they put down a down payment. Where seller financing difference from say a mortgage loan is that the repayment term is much shorter, typically five to seven years maximum. This, I would actually recommend having it in between three to 12 months. That's my recommended depend. If the deal size is of over seven to eight figures, this can make sense. But generally three to 12 to 24 months is what I see for smaller acquisitions. So how does it work? Your buyer might ask for seller financing or you can use it as a bargaining chip. So again, this is essentially your chance to really negotiate with the buyer on a higher price. Or you know, again, your, your job here is to de risk the acquisition. So if you're able to offer a more lucrative, maybe they have a plan to grow the business a ton. And so you can do 50% seller financing and then they can then use the revenue from the business to reinvest that into growth and then pay you over a period that you both agree on. So it could be a great way to again increase the buyer pool and really successfully sell your business. So how does, how does it work? From a technical high level, or I should say a legal high level, but you and the buyer agree to the terms of the financing. The buyer then makes a down payment, usually at the least 25 to 30%, and then the buyer makes regular payments to you as they own and grow the business. Now you and the buyer are going to want to sign a promissory note, which is basically like you are issuing a loan to the buyer and they have a legal duty to repay that loan to you. And then the buyer makes the final payment balloon after whatever the agreed timeline is and you're all set and you're both happy. So why seller financing can change your life for the better. 99% of an acquisition is finding the right buyer. Believe me when I say this is no easy tasks. When I sold my first business business apps I had countless offers. Some I pursued, some others demanded too much of me and my employees and just poured years sweat. So being flexible in funding, I personally really pushed for, you know, just being able to, you know, widen the PIR pool as much as possible and then get the best terms. So this could also be a way to get buyers interested and then based on the best terms again if you have no buyers, if you have one buyer, you have no buyers. You want to attract as many buyers as possible and seller financing can be one of the best ways to do it.