A Seller Annuity: Why Owner Financing is a Very Good Thing!

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A bank ad caught my attention. They actually spent money to tell the public they were paying 2% on a certificate of deposit. 2%. Meh! I don’t think that keeps up with inflation, does it? How about getting 6 or 7% interest on a secured note? Does that sound better? Thought so.

Your business is a cash machine, producing income for you and your family as long as you are running the business. However, when you’re ready to sell, how do you keep the cash coming in? By selling to a third party who pays cash up front plus a seller note, generally at an interest rate that exceeds what you could get if you put cash in a CD at the local bank.

Generally, the note is secured by a lien on the business assets, and generally the note has a provision that gives you, the seller/lender, rights to inspect books on a regular basis to protect your payments from the business. Over the years, the CBI TEAM has become expert at structuring business owner financing to protect the seller and provide a stream of income for the seller to retire. Most often, the seller note is tied to the value of the goodwill of the business, something third party lenders like banks, are loath to do.

You, as the business owner and operator, know the goodwill of the business is measured in historic cash flow, and have reason to believe that the cash flow will continue as you identify and negotiate the sale of the business to a good buyer.

So, don’t fear owner financing. Embrace it as a way to provide yourself and your family with a stream of income after you exit the business.