What Is Owner Finance?
A Seller who has no debt on their business or real estate may opt to offer the buyer owner finance. Such financing also known as seller finance or “holding the note” occurs when the seller at contract signing agrees to become the buyer’s lender. Typically, buyer agrees to a certain amount down payment and instead of seller getting full payment at closing, they instead sign an agreement with the buyer to accept monthly installment payments. Such financing agreements usually call for a balloon payment say in 3,5,10 years or longer.
Owner finance may be one of the most over looked sources of funding in the transfer of business assets and Real Estate wealth in America. It is a concept that has been around forever. However, as a creative funding source, it is not well understood because no real estate schools nor traditional means of education teach anything on the topic.
Owner finance can be a good strategy for the seller to defer capital gains on the sale in addition to continuing to receive a stream of income from the buyer for several years depending on the agreed terms. The terms usually offered on Owner Finance are typically negotiable and often more lenient than any form of bank financing. Owner Finance eliminates much of the red tape buyers have to deal with when applying for a tradition mortgage or business loan which makes it an attractive alternative for many buyers. More than 85% of small businesses for sale under $1 million offer some form of Owner Finance. In fact, Owner Finance may be the #1 way to buy a Business today since, in the case of sellers, it attracts a larger pool of interested buyers and is an indication to the buyer that the seller has confidence in the future performance of their business.