Small Business Seller Financing: Do your Due Diligence

Are you planning to sell your small business?  If so, there is a good possibility that you will be asked by the potential buyer or business broker to provide some form of seller financing in order to close the deal.  In 2014, more than 80% of business brokers surveyed by BizBuySell, a leading internet marketplace for selling businesses, said that seller financing is either important or essential to completing the sales process.   Before you decide to either provide seller financing or not, it’s important for you to understand the due diligence tools that are available to you and can provide valuable information, enabling you to make the best decision.

To be sure we’re on the same page, let’s first define what seller financing is and then we will dive into the tools available to sellers.

What is Small Business Seller Financing?

Simply defined, seller financing is when the seller of a business accepts partial payment up front, with the balance being paid over a period of time with interest, by the buyer.  Furthermore, the loan is typically secured with collateral from the business such as inventory or equipment.  In some cases, the buyer will even personally pledge assets such as homes, investments or other valuables to secure the loan.  In the event the buyer defaults on the loan, the loan agreement typically contains a covenant that allows the seller to step in an assume control of the business.   

Seller’s Due Diligence

As the seller, you are likely prepared for a buyer to do their due diligence on the business, your financials and your customers. Similarly, if you are providing owner financing, you should be prepared to perform your due diligence on the buyer so that you can make a decision based on facts and accurate information. 

So, what type of information is available on a prospective buyer?  There is a significant amount of relevant information that can and should be considered when evaluating whether or not to provide the buyer with financing.  Global’s investigative reports will provide you with data that speaks to the character, trustworthiness, and moral compass of the buyer, based on their past behavior. 

Global’s investigative reports can provide sellers with information about a buyer’s criminal, civil, and financial history.  Furthermore, our reports can also validate education or employment history, if requested. 

Our reports help answer questions such as:

  • Does the buyer have a criminal record?
  • Has the buyer ever filed for bankruptcy?
  • Does the buyer have outstanding liens and/or judgments against him/her?
  • And more!

If getting answers to questions like the above would help you as you consider providing seller’s financing, then contact us today.  See a sample of a report on an individual here or on a business here. Our reports are available worldwide and can be delivered as quickly as 24 hours, depending upon the location of the subject.