What is Seller Credit?

A seller’s credit is, by definition , a financing transaction by which the transferor of a company grants the transferee a loan , under the conditions he wishes.

Concretely, this technique makes it possible not to go through the traditional banking circuit. The purchaser does not have to constitute a financing file with banking establishments.

The setting up of this type of loan is authorized in the context of a business takeover, in the event of the purchase of goodwill or the purchase of company securities . It is also used in real estate transactions .

A specific tax declaration must be made when setting up a seller’s credit.

There are several advantages to setting up a seller’s credit during a buyout.

However, these essentially concern the buyer since the seller, for his part, only recovers the funds in a staggered manner over time. In compensation for the risk he takes, he still receives remuneration: financial interest. The assignor must always bear in mind that he is taking a risk by agreeing to provide seller credit. In addition, the seller generally pays the tax on the capital gain immediately, even though he has only received part of the sale price (NB: there is a system for spreading the tax if applying under conditions).

For the buyer, the interests multiply. First of all, the seller’s credit saves him time , because he does not have to contact banking organizations and compile financing files. Then, this can allow him to negotiate more advantageous conditions than in the case of traditional financing: total or partial absence of professional bank guarantees (collateral, assumption, deposit, etc.), low interest rate, etc.

When a sale takes place in a family setting , the seller’s loan is a very attractive financing solution.

How to set up a seller credit?

The establishment of a seller’s credit requires a climate of mutual trust between the seller and the buyer:

The buyer must demonstrate his motivation to take over the business and develop it,
And the seller must believe in the success of the project carried by the buyer.
In practice, it is the transferor who has the last word. He sets the financing conditions for the seller credit he grants: amount, duration (between 1 and 3 years in most cases, 5 years for excellent files) and interest rate. A negotiation between the two parties can, of course, take place.

To materialize the agreement, a writing must be drawn up. The intervention of a notary is generally essential. The deed of transfer itself or a separate document may contain the provisions applicable to the seller’s credit.

The seller rarely extends seller credit for the full sale price. In general, this financing represents 30 to 50% of the amount of the investment. Traditional professional bank loans or personal contributions finance the balance.

What guarantees can the seller’s credit take advantage of?

A seller’s credit is not without risk for the seller . This is why the law authorizes it to set up certain guarantees .

First of all, the drafter of the deed can establish, for his benefit, a privilege of the lender of money . This guarantee enables it to recover its debt in priority from third parties.