Seller’s Financing

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by a searcher
in Mackay QLD, Australia

4yrs ago

Seller’s Financing

Hi everyone,

I am curious to know if anyone here has experience in acquiring a company/business using seller’s financing? (seller’s earn out).

If so how did the business owner react? was it in a positive or negative towards the idea?

Thank you.

2 Likes

707 Views

reply by an intermediary 4yrs ago
from Northwestern University in Orlando, Florida, USA

There are three levels of seller financing:
- Seller Note - fixed principal, fixed term, interest
- Seller's Revenue-Based Financing - fixed principal, non-fixed term, interest
- Earnout - non-fixed principal, fixed term, no interest

If you are a good communicator, Seller's Revenue-Based Financing can be a win-win, if combined with other means of payment. It offers the benefits of both a seller note and an earnout while avoiding some of the downsides of either.

Most sellers expect some amount of seller note and dislike earnouts. However, most sellers have no set opinion about a Seller's Revenue-Based Financing.

Beware about earnouts: If you offer some sellers an earnout, they will value it at less than you value it, which means it's simply a waste of money (to the extent it is paid after the seller has transitioned out of the business).

reply by a searcher 4yrs ago
from Concordia University in Dubai - United Arab Emirates

From my experience, when the deal is public, it's harder to get seller financing as the owner has many options. However, when you source a deal that where the owner has not gone to a broker or was not intending to put it on the market, you have a better chance to agree on seller financing/earn-outs.