A six-figure asset sale with payment terms

Banks are typically loathe to enter into agreements with third parties that aren’t associated with the original loan.

Case in point: when negotiating with a lender for a “short sale” on business assets, they rarely, if ever, permit the purchaser to do anything other than close with a lump sum payment within 30 days of acceptance. This can often blow up a potential sale, because of course there are many buyers that have financing contingencies or simply cannot come up with the cash in lump sum format.

However, there is one notable exception to this general rule of thumb: when the value of the purchase price exceeds six figures, banks can and will enter into an amortized payment schedule with a buyer of business assets.

The logic behind this is fairly obvious, but it’s worth highlighting. When a bank will be receiving six figures on its collateral via private sale, they’re willing to expend additional resources such as legal fees (to draft the agreement), and the human resources to ensure the collection process (on the structured sale) is being handled appropriately. Otherwise, it’s far easier for them just to “pull the plug” on the deal and call the auctioneer. This is especially true when there’s an SBA guaranty involved.

I recently experienced this firsthand with a client that sold his heavy machinery retail business. After nobody responded to the business listings we had put into a national business broker database, we finally received an offer in writing with a caveat – the buyer needed three months to close, and would be making installment payments along the way. Typically a bank would shun the request and simply move forward with a forced liquidation. However, given the #’s involved here, including the recovery value posed by a private sale (good), and the cost of forced liquidation (bad), it made sense for the bank to play ball and accept the terms of the buyer.