- On May 1, 2017
Sellers are self-financing less and less. Historically, sellers financed most, or all of the acquisition, but not anymore.
External financing for acquisitions went from 29% in 2015 to 76% last year and external acquisition financing has increased 1100% in just the last 3 years.
With SBA and non-SBA acquisition loans readily available through AdvisorLoans, PPC Loans and Live Oak Bank, sellers don’t have to seller finance the majority of the deal anymore.
When external financing was used the average down payment in 2016 was about 75%. With all else being equal, a seller will typically choose to receive 75% down and finance 25% than the inverse.
External financing helps the buyer with cash flow by amortizing over 10 years and without requiring a down payment out of pocket. It helps the seller with their risk by receiving 75% up front.
With acquisition lending becoming commonplace in the industry now, buyers who do not have financing lined up are at a considerable disadvantage than prequalified buyers able to provide a 75/25 option to the seller.
We see the claw-back clause attached to the seller note. If a minimum retention benchmark is not achieved, then a price adjustment is made to the sellers note.
For SBA loans, the seller must wait for two years before they can begin receiving seller note payments but the interest can accrue during this time.
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