Owner Becoming the Norm in Internet Business Transactions

Mar.13, 2009 in Internet

With the state of the world economic condition in a seemingly endless free fall, the environment in the online business for sale segment has cooled along with many other industries. There is a lot more fear in the market, with buyers picking only the most resilient of opportunities that have been capable of weathering the financial hurricane.
Consequently, there are lots more sellers emerging from this quicksand, listing their websites and trying to find a buyer to buy them out so they can consolidate their savings during these unnerving times.

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On the other side, there are less buyers with existing money to transact a deal with the sellers. To make the situation worse, the tight credit markets have all but assured that available credit previously simple to get, has all but seized up. In fact, the Small Business Association division of the government that is the guarantor of small company loans through the banks has just curtailed their parameters that literally handcuffs most qualified buyers from been granted a loan.
In essence, they have decided that acompany’s goodwill can only account up to fifty percent of the valuation of the total company appraisal or a maximum of $250,000. The balance has to assets such as real estate, etc. This means the virtual death of any hope for online business buyers hoping to finance web businesses since the majority of the appraisal is going to be goodwill based upon cash flows instead of the intangible asset of the website itself!

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This has now created a big move towards seller financing in order to successfully close a transaction. There are several advantages to this modeprocedures can drag on for three to four months before they are totally funded. Owner financed transactions can close fast since they are less formal and the collateral is the online business which will be repossessed if the buyer defaults. In addition, the owner can earn a enhanced interest percentage on the balance than they would in the bank, so they will actually earn more over time. Particularly when the tax implications are taken into account. Taking monthly principle and interest as opposed to one giant amount at close can deflect taxes and potentially reduce the tax level and consequent liability over the long haul.
The perceived negatives are added risk of non payment, longer payout time period, and less money at closing. Risk can be reduced based upon the prowess of the buyer and their credit rating and background of prior internet success. Seller financing is only appropriate with the most qualified of candidates and with a reasonable amount paid at closing. The typical percentage of seller financing occurring now is 25 -50% with a few rare exceptions of up to 75%.

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In the end, both parties who aspire to get a deal completed need to make compromises so they can attain the mutually desired goal of completing the internet.