I run a small commercial cleaning company with about 1.2M in annual revenue and solid EBITDA. I've been trying to sell for six months. Every single inquiry that asks about seller financing turns out to be someone with no capital, no industry experience, and no real plan. They want me to hold a note for 80-90% of the price while they "learn the business." Meanwhile the buyers who can actually close with conventional financing or cash aren't asking for seller carry at all. Am I missing something? Is this just how it works?
Seller Financing
Why do unqualified buyers always want seller financing?
You're not missing anything. The buyers with money don't need your financing. The ones asking for 90% seller carry are telling you exactly how much skin they have in the game.
Because seller financing is the only way they can play. When you have no down payment and no collateral, the seller becomes the bank. A real bank would laugh them out of the room. They know that.
I've sold two businesses. First one I carried a 30% note for a buyer with industry experience and a real down payment. Worked out fine. Second time around I got flooded with people asking for full carry. One guy literally had a spreadsheet showing how he'd pay me back from the business cash flow with nothing left over for reserves. Passed on all of them.
That 30% example is helpful. I'm not against carrying some pAper if the buyer has real experience and puts down 20-30%. But 90% is insane. I'd basically still own the business while they run it into the ground.
The unqualified ones ask because they have nothing to lose. If the business fails, they walk away and you foreclose on a shell. If it succeeds, they got a business for free. The asymmetry is entirely in their favor. That's why they push so hard for it.
Some of it is just what brokers tell them. A lot of business listing sites and brokers advertise seller financing as the norm. So every tire kicker thinks they can just ask for it. It's a numbers game for them.
Not all of them are unqualified. I bought a landscaaping company with 15% down and seller carry on the rest. I had eight years in the industry and a detailed operating plan. Seller still want ed a personal guarantee and a right to inspect books quarterly. We negotiated it. But I didn't ask for 90%.
Right, but the ones asking 90% aren't PineBarrensJJ. They're the ones who think owning a business is passive income.
OP, how are you advertising the business? If you're on the big listing sites, that's where the bottom-feeders congregate. Might be worth talking to a broker who screens buyers before handing out financials.
I listed through a broker and aklso on one of the bigger marketplaces. The marketplace leads are the worst. Broker has been better but not by much. Might switch to a more targeted approach.
The reason is simple. Seller financing transfers risk to you and reduces their required capital. Unqualified buyers aren't stupid, they're rational. They want the least risk possible. The question you you should ask is why you'd accept it from them. You shouldn't.
Also consider the interest rate environment. SBA loans are expensive now. Conventional business acquisition financing is harder to get. So more buyers default to asking for seller carry. Doesn't mean they're all qualified, but the pool of people asking has grown.
If you do carry a note, make sure the down payment is real and the buyer has industry experience. Otherwise you're just renting them your business with extra steps.
One thing that helped me when I bought mine: the seller required me to work in the business for six months before the note even started. That filtered out the fantasy buyers. Maybe propose something like that to serious inquiries.
Six months of working for the seller before closing? That's unusual. Most deals don't have that kind of runway. But I see why it would help.
Bottom line, unqualified buyers ask because you're the only lender who will consider them. That's not a bug in their behavior. It's a filter for you.