Selling a business is already a complex process, but if your business carries debt, it can feel downright impossible. The good news? You can still sell a business that has debt, and in many cases, it’s not only doable, it’s common.
At Transworld Business Advisors of Texas, we work with business owners in all kinds of financial situations. Whether you’re trying to offload a business due to financial strain or you're just ready to move on, here’s what you need to know about selling a business with debt.
First Things First: Debt Is Normal
Most businesses carry some form of debt. Whether it's a business loan, equipment lease, line of credit, or payroll taxes, debt doesn't automatically scare off buyers. In fact, experienced buyers often expect some liabilities to come with the territory.
How Debt Affects the Sale
When a buyer evaluates your business, debt becomes part of the overall picture—but it’s just one piece. Here’s how it typically factors in:
- Business Valuation: The value of your business is often calculated based on earnings (like EBITDA or SDE). If debt payments are impacting cash flow, that can reduce value.
- Deal Structure: Some deals involve the buyer assuming certain debts. Others structure the sale so you pay off the debt with proceeds from the sale.
- Negotiation Point: Debt can impact the final sale price, but it doesn't necessarily stop the deal. A clear understanding of what the debt is, how it’s managed, and what terms are involved goes a long way.
Types of Debt Buyers May Inherit (or Not)
Not all debt is treated the same in a business sale. Here's how it often breaks down:
- Secured Loans: Loans tied to equipment or property may stay with the business, depending on the sale terms.
- Unsecured Debt: Credit cards or personal loans taken out in the owner’s name usually stay with the seller.
- Leases & Contracts: Buyers may assume leases (for buildings, vehicles, etc.) if they’re favorable—or negotiate to terminate them.
- Payroll or Tax Liabilities: These can complicate a deal, especially if they’re behind or under dispute. Transparency is key here.
Tips for Selling a Business with Debt
- Be Transparent
Trying to hide or downplay debt is a major red flag to buyers. Disclose everything upfront. - Get Your Books in Order
Clean financials, up-to-date tax filings, and a full breakdown of liabilities will make the process smoother—and boost buyer confidence. - Work with a Business Broker
A broker can help you find buyers who are open to businesses with some financial baggage—and help structure the deal in a way that works for everyone. - Know Your Payoff Options
Depending on your situation, you might pay off the debt at closing, negotiate for the buyer to assume it, or refinance to improve terms before the sale.
Bottom Line
Yes, you can sell a business with debt, but it requires the right approach, honest communication, and a clear understanding of your financial picture. At Transworld Business Advisors of Texas, we help business owners just like you navigate these challenges every day.
Ready to talk about your options?
Contact us today for a confidential consultation, we’re here to help you move forward.