Jun 15, 2021
It seems that most of the Letters of Intent we receive on behalf of our clients include the buyer requesting some amount of owner financing. While there are many things to consider when deciding how to respond, our preference would be for our clients to finance as little as possible, or none. There is no standard answer, but it’s important to understand why the buyer is requesting owner financing. There are limitless reasons, but some of the common ones include:
Seller financing could be in the form of a note payable, interest-free payments in the future, contingency payments or earn-outs based on future milestones. If the seller does agree to finance a portion of the purchase price, interest rates are certainly negotiable and can be tied to a percentage above current bank rates or based upon the risk associated with the loan. We like to see notes to the seller personally guaranteed by the buyer which are usually subordinated behind the bank.
If we have a really good buyer/seller match and both sides are eager to do a deal, we sometimes suggest our sellers finance a small portion – say 5 or 10% -- because it can go a long way to comfort the buyer.
For advice on any form of seller financing, call us at 913.648.0185.