Expert Answer

Lance Hood:               When you buy a business do you prefer have the seller finance it?

Richard Parker:           Yeah, I wouldn't buy one without it. I've never sold one with out it. To me it's the only real way. First of all, it accomplishes a couple things. Number one, for the seller it gets them a better price typically. It's common. And as a seller's prospective brings a whole greater pool of prospective buyers around the table, as opposed to having this rigid guideline, these all cash deals, which don't happen often at all, but that narrows down the focus dramatically for a seller.

                                    And I represent a lot of sellers in these transactions. I tell them from the get go, "Be prepared. Here's how much we're going to have to potentially finance. Because of all these things it's going to get you a better price. It's going to open up the buyer pool dramatically of people who we can potentially sell the business to."

                                    From a buyer's prospective it's the only way, number one, that you can validate what the seller has represented. I mean, if they have no risk, I mean they can tell you anything. So it's the only way to validate what they've represented is if they have skin in the game.

                                    The second thing is flexibility wise, I mean you can get much better terms from a seller than you can from a bank. And banks don't finance small business purchases. Everyone thinks that banks have their vaults open waiting finance a deal. It doesn't happen, because - they will if you have 100% collateral but who has that? If we had that you don't need the bank.

                                    So there are some of these situations where they have SBA type financing but those only happen in about 6% of the cases. So these banks have these wonderful ads that we cater to small business, yada, yada, yada, but they don't really. They don't really cater to small business or prospective small business owners.

                                    And so the terms and flexibility, being able to get the deal done, tying to seller to the business. The only mechanism that you have to validate what the seller's representative, for all those points alone it's critical to have seller financing.

Lance Hood:               So isn't that one of the big keys to how a normal person working a 9 to 5 job can slide into owning a business? Because the person owning the business will finance it for the person who wants to buy it, and they'll do that because A; they can get a higher price, and B; they'll have far more potential buyers.

Richard Parker:           Well I can tell you that 91% of our clients get seller financing.

Lance Hood:               See, I think that right there will open people's eyes to the fact that this is totally attainable without having a lot of money. So you don't have to go to the bank to get all the money. The seller is going to let you pay for most of it as you go using the profits of the business.

Richard Parker:           I hear it from brokers from time to time, especially when I write some of the articles that I do related to seller financing and they'll say, "We don't do it." You'll have Sellers who think that they won't do it, but the best example that I could tell people is we've dealt with over 20,000 transactions. Ninety-one percent of our clients get seller financing.

                                    I wouldn't do it any other way, unless you're getting the business at an absolute steal. Or it's so inexpensive that it may make sense to pay out cash, but even then I do so with great trepidation, and of all the businesses that I've purchased personally, I've never done it without seller financing and I've never sold one without seller financing.

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