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Is "lease-to-own" a viable way to take over a business?

I realize that it wouldn't me the most prevalent way to do so, but is it even something to consider?

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The BAF Group LLC

Anything is possible between a willing Buyer and Seller, especially in this market; but it is not the norm and it is not something most Sellers would ultimately want. One of the questions is, what kind of business? If it is a service business, what are you really leasing? What security is there for a Seller? You would normally lease a fixed asset, not an intangible.

The more prevalent way to go is through a purchase, with a note from the Seller. In that kind of scenario, the Seller would ask for a well defined payment schedule and ample security for the note he would give you. That way, he has a sense of security. How much security would depend on the way the deal is structured.

In a "lease-to-own" situation, if I were the Seller's Broker, I would caution him away from such a deal. The reason is that the Seller really gives up the business, but only gets a promise to pay a set amount each month for the term of the lease. If the business fails while the Buyer has it under lease, he can just walk away with the Seller having no way to then re-sell the company, unless he first repairs whatever the Buyer has done to harm it. And it may well be that the business cannot be rebuilt. So, the Seller would be out, altogether.

Again, in this market there are a LOT of creative things done. But this is a stretch, I believe.

Mar 15, 2010

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