Seller Carry. Why We Should Avoid It When We Buy Business in NYC
“Seller carry” is a legitimate way to secure a business purchase in certain scenarios. It basically consists of the financing made by the selling party of a portion of the sale over an extended period.
This might be a reasonable course of action in the event that:
* The buyer doesn’t have all the funds available
* The bank won’t lend the remaining amount
* The seller, nonetheless, still wants to go ahead with the sale
Notwithstanding, there is a lingering temptation on the part of investors to keep sellers on a leash via a _seller carry note_ that could function as an additional “warranty” of sorts, beyond whatever other warranties found in the Asset Purchase Agreement (APA in short). If a seller agrees to the issuance of this seller carry note, the buyer is thus reassured that the former will not try to “cut and run” when serious problems arise.
There is nothing wrong with exercising a bit of caution, particularly when you buy a business in New York City (of all places). Alas, this fear can get a bit too far and we can end up pushing away a good seller for no discernible reason.
It should not surprise us that putting such a burden on the seller is not appreciated, especially whenever the buyer has all the means to pay the required amount. When we push it too far, asking for a seller carry can become a giant deal-breaker. For this reason, business brokers advise against opting for this route save for special circumstances.
Bank Financing to Buy a Business New York City
If you decide to buy a business (NYC and elsewhere), banks actually _do _finance a large sum of the investment price, contrary to what many would believe. Most often than not, this financing represents a whopping 90% of the asset’s value, which is the maximum percentage guaranteed by the US government-backed SBA (Small Business Administration).
Unless you genuinely have a bad credit score – in which case, you’re not eligible to buy a business in New York City in the first place – getting credit for a sizable portion of a small business’ purchase price should not be overly difficult. A competent business brokerage firm can offer assistance in this regard and direct you to highly affordable and reliable lenders.
Situations could arise, however, in which investors don’t have the remaining 10% or they need to fill a 5% gap, in which case, seller carry notes are a good alternative. Be advised that seller carry notes should not wholly _replace_ the loan but rather serve as a means to mend the fence when available funds are not enough.
The only reasons you’d want the seller to assume an exceedingly high percentage of your purchase in lieu of a bank is because:
* As said earlier, you don’t trust him/her; or
* You’re not actually a suitable buyer under the criteria set out by virtually every professional business broker, to begin with, if only because you’re not in good standing with financial institutions
Either way, the seller’s confidence in you wanes and he/she might even feel offended by the proposal. It’s one thing to abide by the “settled accounts keep old friends” motto, and another one to go the extra mile and call good faith into question beyond necessary.
