Buyer wants me to finance Retail Bus. - Posted by docniss

Posted by docniss on November 11, 2005 at 17:38:51:

Thanks for the info. It helped alot. I have decided that I will not finance it for them, I do not want this business back…actually it’s my husband’s and he does not want it back. I sat with my financial calculator this morning and ran some #'s and there is no way I would enter into this. Hopefully a bank will, and then maybe either they can do 0%cc or family all of which I think is possible for them. At least if what they are telling me about there credit is true. Thanks again


Buyer wants me to finance Retail Bus. - Posted by docniss

Posted by docniss on November 11, 2005 at 11:33:07:

I am sellin my retail business and hae an interested party but…The first banker said they would finance 100%, then came back and said they would only finance the inventory. They spoke with a broker and got the same answer. Buyer want me to finance the $40,000 above the inventory amount(sales price of bus. $70,000. heir plan is to Buy another house(where they will move the business) get a 125% loan and pay me my $40,000. My concerns are that 125% of the listed price of the house they want to buy will not give them an extra $40,000, and I have concerns that it may take awhile for them to sell their current residence. I initially told them I would consider financing $20,000 at 8% with a balloon in 6 mos., but I think these folks may be over their heads. I posted this in the general forum, it was recommended for me to post it here. Although I think I have decided not to finance this for them I am still interested in ideas and feedback.

Re: Buyer wants me to finance Retail Bus. - Posted by Shawn Dostie

Posted by Shawn Dostie on November 11, 2005 at 16:33:05:

You got a great perspective from Killer Joe. I’d like to give you another one.

If you finance blue sky at all, it is risky. Of course you understand risk or you would not be in business for yourself. I too would ask for financials on the prospective buyer. There are 2 things in your post that intrigued me. The first is that the 1st banker has no problem with the financing of inventory as well as the broker. This means to me that your buyer has good credit. The thing that concerns me is the wild idea of selling one house for another and attempting to get 125%LTV although if it houses the business too that could be a little different. Where is the existing location of the business and what is the business? On the issue of 125% LTV, I keep getting pounded with offers of that myself and wonder why in the heck a financial institution would even be interested in putting themselves in that position (Where I live appreciation of RE is negligible right now)
If the buyer has good financials, and IF they have some solid experience in this business and if your gut tells you it is right then I would consider it only with protections in the form of if they don’t make the payments you get the entire business back. I have two sellers financing me currently. My Car lot (Real Estate and blue sky only, I have a LOC on the inventory) and a MH park, in which he is carrying a first and if I lose it I also lose a lot of upfront money. My sellers also talked to my personal banker (best friend) and my personal attorney (also a friend). Both sellers also knew my references personally (small town) Only through those stellar references did I pull off either deal. You know, you might suggest to the buyer that he use the plethora of credit cards that are out there. There are many credit cards with $20,000.00 limits out there where he could get the money at 0% for a short term and/or 4-7% long term and get you paid out completely. I hope this has helped somewhat.

Good Luck,

Re: Buyer wants me to finance Retail Bus. - Posted by Killer Joe

Posted by Killer Joe on November 11, 2005 at 13:56:58:

Hi docniss,

My wife and I are currently trying to sell a retail store we have had for 14 years and have been asked by a few potential buyers if we would finance their purchase. Here are just some thoughts I have had about this issue.

As far as using the business and the inventory as collateral, I’m against it. The reason is that the inventory is an ever deminishing asset that needs to be repurchased on an ongoing basis. If the new buyer runs into trouble and stops buying inventory the sales will continue to deminish. This will foster a downward spiral in both sales, and the value of the business. Not a pretty picture if I’m holding paper on their purchase collateralized by the biz/inventory. If they keep the sales up and the business prospers as it has under our ownership, than this would be a moot point, but we have to assess our risks.

If we were to hold paper that is collateralized, as an example, by a real property that had sufficient equity, and we were in a first or second position, I would entertain a short term note for the balance. Your 125% scenario doesn’t meet this criteria, at least not for me.

We are providing the last three years statements to our prospects and if we carry paper we would want the same from them. Specifically what I would be looking for is stability and NO tax problems. A first or second position that can get bumped down due to an IRS lien is what I would want to avoid.

I also am of the mind that if the new buyers are anticipating paying back the paper out of any ‘blue sky’ gross sales increases, that that would make me nervous. Their financials will have to stand on their own using historic figures for the business, as well as their staying power. In short, if they have to stretch to make the purchase we will not carry paper. HTH


Re: Buyer wants me to finance Retail Bus. - Posted by docniss

Posted by docniss on November 11, 2005 at 17:33:42:

Thanks for the info. I have pretty much decided to not finance this as I calculated the #'s and 125% is still not enough, and my calculations are based on the asking price of the house they want to buy, so I think they would be way off. I also know how much they make and I would rather someone else take the risk…I do not want the business back. BTW it is a vitamin store in a small town in Northern Indiana. The potential buyers will keep it in the town but move the business into this house. I actually think it is a good idea as the part of town we hae the bus. in now is dying out, and where they want to move is where the grocery and drug stores and well, pretty much all shopping is located. I did consider the credit card thing and am going to suggest that to them. Once again thanks for the info.