servallgroup

© Simon Blackley

It's no secret. Banks have become tightwads, and for an entirely legitimate reason. Before the crash of the economy, banks capitalized off the ability to borrow money and thus be able to afford financing a loan to just about anyone. However, after the economy became devastated – largely because of this foolish and manipulative practice – the banks learned a hard lesson.

However, as collateral damage, consumers who had become dependent on a lifestyle beyond their means, have been forced to lower their standards. In some cases, this meant to completely change their lives. This tragedy has not been isolated to the consumer world, either. Small businesses have had no less difficulty getting loans from banks, including the sales of their small businesses. As almost a general rule, sales of small businesses have become almost entirely seller-financed.

There are both benefits and detriments to this unfortunate slew of events. This methods of selling small businesses allows great flexibility in financing, especially if the buyer is a worthy candidate. However, if the buyer fails to make payments, the financial detriments might even outweigh the profit from the sale of a small business.

When a payment from a small business sale becomes delinquent, often the seller is forced to outsource in order to collect. This costs money, and takes away from the seller's front-end. However, the real detriment from seller-financing comes not from complications, but from the sale itself. When sellers finance the sales of their small businesses, they often need to drastically cut the cost of the business to be able to sell at all. This can destroy much of the profit from selling their small business, causing the sale to sometimes end in no net profit whatsoever.

As a result, it may be a good general rule-of-thumb to ensure that any small business has absolutely superfluous credit and an impeccable reputation with their bank, before even attempting to sell.