When business owners decide to sell their companies, they have several options, including financing. According to Links Financial, financing includes payments over time for the buyer and a possible balloon payment at the end of an agreed amount of time.
While financing can assist small business owners with acquiring new or improved resources, including building for office space or production of goods, those who wish to sell their business may want to consider several pros and cons of financing beforehand.
1. Pro: A wider pool of prospective buyers
When sellers offer financing for the sale of a business, they may discover that they have an increased number of buyers when compared to other means, such as an all-cash sale. Financing may allow prospective owners more flexibility with simple monthly payment plans, allowing them to increase capital and grow their businesses at the same time.
2. Con: Greater financial risk to the seller
While financing can benefit the buyer, the sellers of a business carry greater risk when they offer this type of payment option. The buyer may find it difficult to make payments if a business struggles and the owner eventually could default on payments. This may put the seller in financial jeopardy.
3. Pro: More flexible terms
Those who want to sell their business via financing can create the terms of the contract and offer the buyer more flexibility when it comes to payment plans. This may allow an improved relationship between the seller and the buyer, especially in a situation where the seller may retain partial control of the business for the first several years.
Sellers may also use a third party, such as a financial institution, to ensure greater security and reduce risk if they decide to offer financing options.