Some business owners may want to rent their company to a potential buyer rather than sell it, but this is not a good idea. Owners may think that since they own the real estate, it makes sense to rent the business for a long time rather than selling for a one-time payment; however, renting a business is not the same as renting real estate. Continue reading to learn more about renting vs. buying, then call Atlantic Business Brokerage when you are ready to sell your business!
The main reasons not to rent your company is because of the cost if the buyer fails. If the buyer is paying rent on real estate and the business fails, the real estate can be rented to someone else. A seller may lose a few months rent, and if the buyer fails, the business will likely be in much worse shape than when it was rented. If the buyer has failed, it will be difficult to find another buyer who is interested in your company. Essentially, if you rent your business rather than sell it, you are taking on the risk of the buyer’s business.
Another reason not to rent your business has to do with financing. When someone purchases a company, they will usually get financing. In order to get financing, a buyer needs to go through a qualification process to ensure they are likely to succeed. This includes qualification such as a good credit score and a successful business background.
Lenders also require buyers to have a down payment- typically 10 to 25 percent of the loan amount. This is very important, as most buyers will work hard to make the business succeed if they have a significant amount of money on the line. When selling a business, the seller wants to finance as little as possible to get the majority of the purchase price at closing. If the company is rented instead of sold, the seller doesn’t receive much when the buyer takes over the business.
Sell With Atlantic Business Brokerage, Inc.
At Atlantic Business Brokerage, our mission is quite simple; we help sellers sell businesses, and buyers buy businesses! Over the past 30 years, ABBI has facilitated the sale of countless commercial properties, businesses, and franchised locations. With our unparalleled knowledge of the business purchase and sale industry and our network of contacts, we offer services to both buyers and sellers that no other brokerage firm can match.