Most business purchases will have a seller financing component, and an all cash deal is quite rare. This means the total payment will be divided between the down payment and the amount financed.
There are two options for financing the purchase of a business. One is a bank loan, the second is seller financing. The best deal for the seller is to have a third-party lender finance the transaction. If there is a lot of goodwill associated with the purchase, then what typically happens is you must finance with an SBA guaranteed loan.
The down payment amounts for financing vary, as well as the length of the repayment schedule. For seller financing, the down payment wouldn’t be less than 30%, but usually it’s more in the range of 50-60%. The interest rate would typically be a couple of points above prime, with a payment schedule in the three-to-five year range.
With an SBA guaranteed loan, the payment schedule will typically be seven years, and the down payment can be as low as 15-20%. However, there are some limitations on the amount of goodwill that can be financed and some requirements about your experience in order to secure an SBA-backed loan.
Learn more about the transaction cost!