How To Sell Your Business Loan
by Larry Slusser on April 9th, 2008
After you build your business up and are successful you might be tempted to consider selling. The problem many business owners run into is that finding someone to buy their business is difficult. Many times people are interested in purchasing the business but they lack the cash to make the purchase, or have credit that isn’t quite good enough for standard financing. Although everyone dreams of a quality business person with cash and financing to walk in that doesn’t happen very often.
The bank is going to check on the history of the potential owner to see what their financial situation is. Unless they have outstanding credit and a strong track record of successfully running businesses the chances are they will be unable to obtain a loan to buy your equipment, customers, buildings, or other assets.
If you have succeeded in business the chances are you possess a good amount of the entrepreneurial spirit. That spirit gives you a can do attitude and where there’s a will there’s a way so you most likely will find a way to get your business sold.
A prospective buyer who has enough cash for a down payment and some decent collateral can many times work with the owner of the company and talk them into carrying the loan. It works just like carrying a loan on a house or property. And one advantage is you know exactly what the collateral is worth because it was your business!
Selling a business is difficult and banks won’t just automatically allow the person who wants to buy your business to take over your loan even if they do have enough for the down payment. In fact, they may not even consider the success of your company due to the fact that it will be run by a new owner.
Carrying the loan when you sell your business can work for many people, except in a couple of glaring exceptions. If the future owners of your business decide to stop paying you are suddenly back in business as you will have to repossess you company. Repossessing a business is difficult and not an easy position to be in. Make sure you conduct due diligence on the people you are considering carrying the note on your company for.
The second instance where selling your company and carrying the debt won’t work is if you need the money out of the business quickly. But what do you do if you can’t find a cash buyer or someone who can qualify to buy the business? You carry the loan yourself and then look for an alternate buyer to purchase the debt.
Start with banks and local firms who purchase debt just be aware they are going to discount the loan, which means they will buy it for less than it is worth. This is the cost you will pay for cashing out the debt, but remember, when you sell the debt it is no longer yours to carry and you can take your proceeds and do with them what you want.
Ensure you consult a business law attorney prior to selling your debt and ensure you are aware of all of the tax implications from the sale of the debt as well.