Business Seller Financing Factors: Taxes, Creditors, Closing

In part one of this two-part series, we went over some basic considerations that should be kept in mind when providing seller financing as the seller of a business. This is a common arrangement for some business sales, and one where sellers need to do their due diligence and know all the relevant information before moving forward.

At Utah Business Consultants, we're happy to assist clients around Salt Lake City and nearby areas of Utah with all their business sale needs, including everything from business valuation to exit planning, succession planning and more. While part one of our series went over areas like buyers assuming debt, interest rates and collateral considerations, today's part two will look at some other factors that sellers should be considering when offering seller financing for a sale.

business seller financing factors

Tax Implications

Just like in virtually any business sale format, there are tax implications that come with seller financing. This is especially true if the sale price of the business includes real estate, and it's important to understand potential capital gains tax issues that might arise here.

For sellers who have owned their business for multiple years, the Section 1231 gain designation may be an option - this allows the gain from the sale of business assets to be treated as long-term capital gains. However, there are certain qualifications that must be met to qualify, and sellers should speak to our pros at Utah Business Consultants for more details on how this may apply to you.

Unsecured Creditors

Does your business have any unsecured creditors, meaning those who hold claims on your assets without collateral? If so, these creditors will need to be taken into account during the sale - they may need to sign off on various loan agreements, for instance, or be paid in full prior to closing.

This ensures that they won't suddenly come back and try to make a claim on your assets once the business has been sold, which could put both you and the buyer in a difficult position. Again, this is an area where our pros can assist with any concerns you may have during the process.

Closing Costs

Closing costs can be large for some business sales, and it's important to know who will be responsible for them. In many cases, the seller handles closing costs - this is one area where seller financing can come in handy, as some of the funds from the sale can go toward these costs.

However, there are rare situations where buyers are expected to cover closing costs themselves. Buyers who have already been approved for financing may have an easier time with this, but it's important to clarify these terms early on in the sale process.

At Utah Business Consultants, we're happy to provide assistance with all these areas and more when it comes to seller financing for business sales. Contact us today for more details or to learn about any of our services.

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