393 - Why Do I Love Seller Finance So Much?

0:00So why do I love seller finance as opposed to SBA financing? Well, there's a lot of reasons, but I wanted to give you a couple that top that list. First, I never liked the SBA because of the personal guarantee. Would I have done it at the beginning of my entrepreneurial journey? Yes, I probably would have. Would I do it today? No, I would not. but there's a lot more reasons in the recent year where I don't like the SBA loans and in

0:36Bruce Whipple:comparison do love the seller finance even more and I want to give you some examples of that in this podcast and a couple of the major reasons so one of the advantages of the SBA was a lot of people could qualify for it. Yes, you needed to have a personal guarantee, but other than that, there were certainly some requirements, but not as onerous as today. And today, if you want to do, for instance, a 60-40 deal or really any equity that the seller keeps, the seller is going to have to be on the note as well in either a two-year or a full standby, essentially. Now, think about that for a second.

1:26Let's say you want to sell your home, and you list it for sale, and you find a buyer, and the buyer makes an offer that's accepted and then gets a mortgage and is accepted for that.

1:38Bruce Whipple:But at the 11th hour, he comes to you or she and says, it's great news I got accepted on the mortgage. The only one thing you need to sign on the mortgage as well as a guarantee. No way. That deal is now dead. Same thing would apply to the business. I cannot begin to understand why a seller would sign on the note when they're selling the business. There are also requirements with respect to what the board has to sign and be on the note. and it used to be anything greater than 20%. Now it's any percentage. There's residency requirements and there's many more. So the SBA takes a long time usually, like six months.

2:29Bruce Whipple:So there's a lot of reasons why that doesn't work. But the one that I like the best in terms of what we can do to use it is the requirement for the seller if they retain some equity. or if they have the credentials like a license that you need, that's another reason that they're very likely going to be added to the note as a guarantor, to just say to them, you know, we can do a conventional bank financing. That said, the bank is almost always going to go with the SBA because the SBA backstops that loan, and so their risk is much less. but they're going to want you to almost certainly sign as a guarantor on the loan.

3:15Bruce Whipple:And I have no idea why you would want to do that. If I were you, I would not do that. So there's an alternative to that, and that is seller financing. And then go through the advantages of what seller financing offers. That said as well, this whole process should start with you understanding understanding what the goals are of that seller and then match up those goals with your offer rather than just say at the beginning, would you accept seller finance, which screams I have no money. So I want to give you a couple of examples of that. The first was a husband and wife mentee that ended up from the time they met with the seller to the time they closed, it was 45 days.

4:06They did have a down payment that they could do, but with that exception, there was no bank involved. It was all seller finance. 45 days. Compare that to six months or so. If the requirements of the SBA don't change to the point that in the 11th hour, it kills your deal. The other one's a little more lengthy,

4:29Bruce Whipple:but I want to read it to you. This is a mentee who was in the VIP Mastermind, and he wrote me back at the end of March. Hi, Bruce. I closed my second deal in the art education roll-up. This was a very good choice to pivot. Thank you for your support for that in the Mastermind group. The reason he wrote that is he came to me saying he wanted to do home health. I said I wasn't excited about home health post-COVID. I asked him what business he was in. He was in this education business. I asked him how that was going. He said, good, the margins were much better than home health. So I said, why don't you focus on that, which is what he did, which is why he wrote what he just did.

5:11Bruce Whipple:This is a Dutch general partnership where I acquired 100 % of the assets and liabilities with full seller financing. No bank, no outside capital. The deal is structured through an annuity arrangement over 10 years with the seller getting paid out over time. One of the owners is 69 years old and I negotiated a two-year grace period in his portion of the payments. That means I do not start paying that part of the purchase price until after year two. Both owners will remain in the business for another two years, which protects continuity and reduces transition risk. The other owner is 72, and we pay them off directly.

5:50Bruce Whipple:The purchase price is 197 ,000 euros with EBITDA of 71 ,000. Now that's a small deal, but it's bolt-on to his existing operations, so I have no problem in the size of that. Of that amount, the 197 ,000, 188 ,806 euros is financed at an interest rate of 3.19 with the annuity arrangement. In addition, we're buying out two junior partners, and boy, they sure are juniors. The total amount of that was 8 ,194 euros. interest-free, and it's going to be repaid over 10 years because the senior partners of 69 and 72 pay this up front for us. Not bad. I also negotiated 23 ,000 euros of working capital to remain in the business, plus a car included in the assets.

6:45Bruce Whipple:There are no personal guarantees, no collateral in the deal structure. The real strength in this structure is the downside protection. If both sellers pass away prematurely, the annuity payments stop. That means the effective acquisition price drops even further. So I acquired the business with seller finance, protected cash flow, built-in downside protection, no personal guarantees, no collateral, continuity from the current owners for two years, and a significant upside still left in the company. There is substantial growth potential in the business, and I intend to unlock it. Thank you for all your lessons.

7:24Bruce Whipple:I will keep pushing to target 50 deals in this industry, and I have several other deals in the pipeline. That took between December of 2025 to a closing in March of 2026, so three or four months depending upon which days it hit on. So I hope that you walk away from this saying seller finance is a viable option, and with most things you need to first sell yourself that that's the case before you can sell it to someone else. And the key to that, in large part, is understanding what's important to the other person, the seller. I recently offered the seller finance course at a discount. I was really surprised with how many people did this.

8:13So I wanted to do a little test here in this podcast. And that is, if you email me and say that you saw this podcast and you want to purchase the seller finance course. While that offer that I made has expired, I'm going to create another discount offer for the podcast itself. So email me at bruce at brucewhipple.com. Say that you heard the podcast for this

8:41Bruce Whipple:and then that you'd like the coupon code and I will email that to you so you can use it as a discount. So I hope that you see the value in seller finance. I hope you're using it. And I really like, not always does it work, but usually the timeframe is much, much less. So if you want to know what the seller finance course covers, go over to brucewhipple.com under the bootcamp and classes, and you'll see the seller finance mastery program, and you'll see. But don't use that checkout until you get the coupon code by emailing me at bruce at brucewhipple.com. Hope that helps.