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A World Without Banks
By Michael Taylor
What would a world without banks look like for an entrepreneur? Two words: Seller Financing.
In an era of tighter financing standards and risk-averse banks, it’s worth approaching your small business challenges as if next year will be a world without banks. Acting as your own bank, or urging your business counterparts to do so, can help you flexibly solve financial problems.
Cedarcrest Capital recently sold a group of eight houses in upstate New York using seller-financing. The houses needed a lot of work, and I do not believe a traditional bank would have accepted the properties as collateral for a mortgage.
I would have preferred to sell the properties for cash, but the purchaser only wanted to put down 20%. By agreeing to serve as “the bank” for five years, through a long-term stream of payments, Cedarcrest received enough to cover closing costs and a small margin.
Most importantly, I got the properties in the hands of an owner who can do real estate rehabilitation, something which is not Cedarcrest’s core business.
I’m pretty sure my buyer was thrilled to own the eight properties without having to go to a bank.
Properly structured, a seller-financed note is a good solution that serves both the buyer and the seller well. Cedarcrest Capital also frequently purchases notes backed by real estate or businesses.
Sellers of real estate increasingly offer “Owner will Finance” when listing their houses. This lets buyers know that a speedy transaction and flexible financial terms may be available beyond what a bank would be willing to do.
The same principles apply to small businesses offering financing terms to their purchasers. Learning to thrive in a world without banks will be a key to success for entrepreneurs in the coming economic climate.
Comments (0)June 18, 2008 3:29 PM
