Seller Financing and Brokers

searcher profile

March 04, 2023

by a searcher from Utah State University in Provo, UT, USA

Does anyone have any tips for dealing with brokers who seem to block LOIs with seller financing in the terms? I even had one today who was not happy when I sent him one with 15% seller financing (a figure often requested by SBA lenders).

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commentor profile
Reply by a lender
in United States
More banks require a seller note on top of the eligible buyer's down payment ^redacted‌ during the early LOI negotiation and term sheet/bank proposal letter stage. Most often, the seller/broker is holding hard on the price to support the sellers' want. The buyers' lender may call for a seller note to reduce the overall loan project payment to fit the bank lender debt service coverage requirement ratio. It all comes down to the 3rd party business valuation that will determine what really is the value/price of the business. The seller or the proposed buyer could early engage the bank lender-approved 3rd party business valuation to get to the bottom of the actual value. If the seller tells everyone to pound sand, someone may risk losing $2,500 for that valuation. If the seller refuses the seller's note now - IMO he should pay for the valuation. The key is to understand if the real reason for the seller note is because either #1) the historical cash flow can't support the proposed loan project payment or #2) the proposed buyer doesn't have sufficient cash liquidity down payment and or post-loan-closing liquidity or, #3) the bank lender has a tighter equity injection requirement regarding change of business ownership transactions based on their bank in-house credit policies. ‌
commentor profile
Reply by an intermediary
from The University of Chicago in Chicago, IL, USA
Each deal stands on its own as far as the price and structure are concerned. I don't believe in "average" stats. The std. deviation on averages is very, very high. And each deal has its own risk which is not captured in market data.
If price is on the high-end, seller will have less objection to SF. Low price and SF invites resistance.
I have seen some buyers (mainly experienced) make an all-cash offer when broker/seller has not provided enough/quality information. In this case buyer expects to work down the deal,
If bank financing is available, SF should not impact IRR b/c bank financing cost is likely to be similar to SF cost.
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