higher multiple when ~100% seller financing

August 16, 2023

by a searcher in San Francisco, CA, USA

Wondering if it is common to slightly overpay ( higher multiple) when a large seller financing is involved - as large as 100% ?
Anyone out these who did 100% seller finance , did you guys pay higher than average multiple ?

Is there a stats or report available on multiples for seller financing deals ?

Thanks in advance.

0 Likes

6 Replies

129 Views

Replies

Reply by a searcher
from University of Utah in Salt Lake City, UT, USA

I would think just compare to market rate debt out there. say lenders charge 1-2 points for 50% LTV and some fees etc.. perhaps do 2-4 points (either points paid or increased purchase price) and some fees on top of that for 100% LTV seller fi. Then compare to interest rates and how much you have on the interest rate delta over time if the seller note has a lower interest rate then other conventional debt out there could add to purchase price as well. Then also consider your equity costs if you were to raise 50% of the equity what that equity would cost you basically the seller is your "debt/equity" partner so ya I can see how it would be a higher multiple or so higher. Also consider if the seller is not including covenants / Personal guarantee in the loan terms thats worth $ as well. Might be worth weighing each scenario side by side and see how much benefit you are getting.

Reply by a searcher
from Emory University in Marietta, GA, USA

I agree with the above posts that you should never leverage a business beyond what it can take, but I think you can afford to push the multiple a little higher. You should also look for more favorable seller note terms including a lower rate, having revenue threshold under which you don't pay, getting a standby on cash interest payments, having a 5-10 yr bullet vs amortizing...think about all your terms rather than just the $ amount. Sometimes sellers just want to see a higher $ amount and will give you amazing "other terms" that protect your downside as a trade-off for a bit more price.

+4 more replies.

Join the discussion