How Much Does Escrow Cost to Close a Business Sale?
Customarily, escrow fees are split 50/50 between the buyer and the seller and vary depending on the size of the transaction. Escrow cost is less than 1% of the purchase price of the business. However, there is a minimum fee for unusually small deals. Other charges may apply to one party or the other for specific services such as lien filings, lien searches, non-standard documents, and real estate closing documents (if property is part of the sale).
The escrow agent is an independent agent who’s role is to facilitate the close via a written process that is documented in an escrow agreement, or earnest money contract, that is agreed to and executed by both the seller and buyer. We all know the name of the game in business is to minimize risk; the use of an independent escrow agent substantially minimizes both the seller’s and buyer’s risk resulting from the closing process.
An independent third party escrow agent works for both the Seller and the Buyer and, as such, is in a position to be impartial. Just as when commercial real estate or a home is transferred, a third party escrow agent is used to facilitate the close – the same should be done when you sell or buy a business. Employing an independent escrow agent to close a business sale is well worth the cost!
General Overview of Escrow Agent Services
- Holds earnest money in safe, secure escrow account pending closing.
- Coordinates with escrow attorney the drafting of all closing documents, including the bill of sale, non-compete, seller-financing loan documents, etc.
- Drafts escrow instructions according to the terms and conditions of the purchase agreement.
- Obtain a copy of all real estate leases and coordinates and confirms the lease assignments with landlord.
- Performs a UCC-1 lien and business personal property tax search on the business to make sure clear title can be conveyed.
- Submits request to Texas Comptroller for Certificate of No Sales Tax Due.
- Collects and disburses all closing funds according to escrow instructions.
- Out of the proceeds, pro-rates and pays the rent, deposits, taxes, and other expenses required.
- Insures that secured creditors are satisfied. Coordinates any necessary payoffs and handles
- UCC-3 terminations, amendments and/or releases of lien. Includes up to two payoffs and wire transfer or overnight fee for each.
- Files and records all necessary documents with the appropriate authorities.
- Obtain a Corporate Status Report form the Secretary of State of all entities involved in the transaction and confirm that the entities exist and are in good standing.
- Obtain written evidence of proper authority for an entity to sign the purchase agreement and related documents and to consummate the transaction.
- Obtain copies of all pertinent contracts and documents and review the contents of each one.
- Files UCC-1 Financing Statement with Secretary of State when Seller-financing is involved.
- Prepares separate buyers and sellers settlement statements reflecting all funds being handled through escrow.
- Provides one complete set of all closing documents executed at closing to each party. Keeps copies of all sales and closing documents.
- SBA Loan Coordination