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Why Practice A Seller’s Credit?
Seller credit allows the buyer to bypass traditional banking circuits. For the seller, it justifies a higher selling price, because it is on him that the risk rests. With selling merchant services the options can come perfect.
Seller Credit for a Business
The seller credit can relate to the sale of a business between professionals. We will speak of “business seller credit”. Indeed, even if the price of the company or the fund to be taken over falls within the envelope of the buyer, the latter will have to inject an additional budget for the development of the company, for the cash flow, etc., not to mention the contingencies at start to be anticipated in an additional financial cushion.
When the needs for the takeover or purchase of a business exceed the conditions of bank feasibility, some buyers negotiate a seller’s loan with the seller, generally on part of the needs, then finance the balance in cash or turn to banks. As the amount requested from credit organizations is lower, they then come under the conditions for granting conventional credit.
The Terms of Seller Credit
An authentic deed must be drawn up before a notary, expressly mentioning the duration, the amount of the loan, the interest rate and ancillary costs. In general, if a sum is to be brought in cash, it is paid by the buyer when the deed is drawn up and the seller’s credit runs from that moment.
The interest rate is freely fixed by the parties. It can be at rate 0. Indeed, the buyer can offer a rate 0 in exchange for a non-negotiable downward selling price, for example. This formula is often practiced. The seller’s credit is generally equal to 30 to 50% of the total amount of the needs. The balance will be financed by banks or by personal contribution. Seller credit is generally a short-term loan. It is spread over an average of 3 years. It will be essential to take out disability and death insurance for the benefit of the seller. Likewise, the notary who drafts the authentic instrument will take a guarantee on the property sold (called “privilege of the lender of money”) for the benefit of the seller, in order to ensure the total amount of the debt.
Private Seller Credit
Likewise, a seller’s credit can be granted between individuals, for any type of need.
Real Estate Seller Credit
Real estate seller’s credit is the most frequently used seller’s credit between individuals, for the same reasons as business seller’s credit, namely for the buyer, bypassing the banking system and for the seller, to negotiate a fairer or higher price. It is not uncommon for the buyer to pay part of the property’s value in cash and negotiate a seller’s credit for the balance.
Individual Seller Credit Rate
The terms of a specific seller’s credit are the same as for a business seller’s credit. The rate of the particular seller’s credit depends on its duration; its amount, etc. are set freely between the parties who will go before a notary to draft an authentic instrument.