The credit trap

Small-business owners are as acutely aware as anyone of how tight credit has become. And with the bankruptcy this week of major small-business lender CIT Group (not to be confused with last year’s bailout of Citigroup), the credit crunch isn’t likely to get better any time soon.

Another report cites the use of business credit card accounts as the source of choice for quick credit. These are relatively easy to get (often based on an owner’s personal credit rating), but they usually have much higher interest rates and their convenience (just swipe and sign) also provides a serious threat as a debt trap.

But if you’re thinking of selling your privately owned business, you can actually turn this credit crunch to your advantage if you’re willing to be flexible in helping the buyer finance the transaction.

My book, How to Sell Your Privately Owned Business, devotes a section to finding creative ways to help a prospective buyer complete the purchase.

A short excerpt:

“Typically, you as the seller decide on the minimum price you want for the business. Consider taking anything over that amount in owner financing. This minimizes the risk for you. The most you can lose is the amount received that is higher than your lowest acceptable price.

“This type of sale – called an ‘installment sale’ – can be very good for both the buyer and the seller. However, be aware of the risk implications. A buyer will see buying your company as his risk and believe that it’s only fair that you see some risk too. In the buyer’s mind, if you will not take some of the risk, then perhaps your company’s future isn’t at all what you said it would be.”

Eric R. Voth is a serial entrepreneur, a private investor, consultant, and writer. He is author of How to Sell Your Privately Owned Company, a Basic Guide for Independent Business Owners, Baby Boomer’s Edition. Eric and his colleagues help a business Seller prepare and groom his or her company prior to offering it for sale or merger – then guide the owner through the actual process. He became involved in this field as a result of merging his own company in 1993.


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