The Danger of Seller Financing

For many entrepreneurs, their goal when starting a business is to eventually sell it for a profit. The rags-to-riches stories of Apple, Facebook and Microsoft have proven that starting a company can be lucrative; being bought out can bring in big money while also taking away the stress and rigor of running the business yourself. Many business people see that as a win-win, as a business attorney in Charlottesville, VA, such as from Dale Jensen, PLC, can explain.

However, selling your business is not as straightforward as selling a piece of real estate. Many aspects of businesses make selling one a risky venture:

  1. A business is an unstable source of income
  2. Business trends are hard to predict
  3. Businesses are not collateral

So many unknown variables go into the success of a business that any kind of business venture is a risk. If you sell your business at the wrong time, you could miss out on revenue. But if you sell your business, only for it to fail later, you still could end up losing money.

The Risk of Seller Financing

When purchasing a business, buyers will often negotiate for seller financing. This means that the seller helps finance the business, accepting monthly payments with interest instead of a cash sum. Buyers love this option for one clear reason: less money upfront means they could buy a larger business for a smaller initial cost.

For the sellers, on the other hand, this represents a tremendous risk. Traditional loans, like home and auto loans, can use the property being purchased as collateral. If a buyer stops making payments, then the bank or private loan seller comes and repossesses the property.

But repossessing a business is much less straightforward; fluctuating revenue could mean that the seller won’t want the business back. Or if they took it back, they would lose more money than they sold it for, rendering the entire affair pointless.

When a Buyer Stops Paying 

If the person who bought your business stops making payments, filing a lawsuit and taking them to court is your best option. Without collateral or the enforcing power of a bank or government agency, you don’t have any real control over whether the buyer is true to their word. Suing for back payments is the closest you will come to guaranteeing that the buyer will make their payments. Hiring a business lawyer with court experience and a track record for getting results can get you the money you are owed in as timely a manner as possible.

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