Q: What financing options do I have when buying a business? -Future Business Owner

A: Dear Business Owner: Owning your own business can be a dream come true. But many people shy away from the idea of purchasing an existing business because they lack the capital to make the purchase. Buying a business may require cash down, but there are financing options that could make your purchase more feasible.

• Seller Financing – The buyer pays a negotiated down payment to the seller, and the seller acts as the lender by requiring payments for the remainder, making it a flexible option. Down payments, while negotiated, can reach up to 50%, depending on the seller’s needs.

• Bank Financing – Typically requiring 20% down, bank financing allows the seller to walk away with as much cash at closing as possible, which is a good option when the buyer is purchasing the possibility of cash flow rather than hard assets.

• Conventional financing through a lending institution – This option works best when the value of hard assets are close to the purchase price. This allows the buyer to use the assets as collateral and pay the seller directly using the loan funds.

These are three common options for business financing. You can typically expect to pay between 20-50% down and negotiate with the seller on the details. But don’t leave the details of this important purchase to chance. Be sure to work with a Family Business Lawyer™ to walk you through the process of financing the purchase of a business step by step.