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Why 'Holding Paper' to Complete the Sale of Your Indiana Business is a Good Idea


Business sellers seeking buyers will more than likely run into a slew of interested private individuals, private partnerships, husband/wife teams, or even employees looking for the opportunity to rise up to the company's zenith through ownership. The primary reason is, of course, money, but their could be other predominant reasons why someone would seek such a lifestyle change. 

A potential buyer of a small business for sale by owner in Indiana including wanting to 'buy a job' in order to earn a living, buying community prestige, seeking self-fulfillment, purchasing an attractive real estate leasing opportunity, and eliminating competition. Pin-point a buyer's motivation and the selling process becomes easier by default. Keep in mind that 99% of business buyers never actually end up pulling the trigger so rapport and relationship building dynamics go the furthest.

While most sellers would love to just sell their businesses and wash their hands, things hardly end up being that cut and dry. Unless there's a corporate buyer with deep pockets snapping at your heels, you should plan on taking out a promissory note in order to assist the buyer with the purchase of the small business for sale by owner in Indiana. Whether you are a fan of the idea or not, creating a contingency plan based on 'holding paper' or seller financing should at the very least be considered.

Some Thoughts on Seller Financing

Lending institutions will only loan a small portion of the business value presuming the business is extremely profitable, has an extremely loyal customer base, and sits in the middle of a growing market. In addition, they hardly loan more than 70% of the market value of the tangible assets contained in the business. Simple and plain, it's just plain more difficult, but not impossible, to get third-party financing without being well-heeled. An Indiana manufacturer for sale, for example, can attract more qualified buyers by offering this option. Here are some more reasons why holding paper to complete the sale of your Indiana based business is a good idea.

1. Status Quo

The majority of small businesses for sale by owner in Indiana are closely held will most likely be financed by the seller. This means that when you search for a machine shop for sale in Indiana, a manufacturing business for sale in Indiana or the like, there's a 75% chance that the owner is going to end up holding paper. There's nothing unusual about this at all. As a matter of fact, buyers have come to expect this. If you as the seller aren't willing to hold paper for a reasonable term, you may end up losing out to another seller who is at liberty to do so. 

2. Capital Shortfall

Even the most qualified of buyers won't have the ability to fully purchase the business in full. Couple this with the fact that the buyer also has to worry about the transfer of ownership, closing costs, professional advisor fees, and operating cash requirements and it quickly becomes apparent why offering seller financing is not only recommended but essential in many cases. Oh, and I failed to mention the ready cash reserve supply needed in the case of unforeseen circumstances. And then there's taxes as well.

A note on taxes: As the seller, capital gains taxes are more attractive than income taxes, but be sure to think about the buyer here.

3. Great Deal of Latitude

When you, the seller, offer the terms, you can get the best price out of the deal. After all, you're not going to give yourself a bad deal if you can help it. You can present fair terms that are beneficial for both yourself and the buyer; you can select the ideal interest rate that pays a fair owner's wage while still leaving room for debt service; and you can choose an optimal payoff period. You get the full purchase price on top of the compound interest. Some buyers will want you to stay on a bit longer during the transition - this is an opportunity to get even better terms.

Locating a buyer for a small business for sale by owner in Indiana becomes much easier when you stop to consider the buyer's perspective. Holding paper or offering seller financing eliminates many deal-killing obstacles including lack of buyer capital, squeamish lending institutions, deal expenses, and general lending thresholds. Maybe it's time to consider this if yo're an Indiana manufacturer for sale or even a gas station for sale in Indiana. 

If you are selling a business or looking to buy a business in Indiana, send me an inquiry about your situation and we can talk about what to do next.


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