Anyone who has bought or sold a home in their personal life is likely familiar with the concept of “escrow” — the process of storing money, titles, or anything of value with a neutral third party until all sides have satisfied their obligations. But escrow plays a prominent role in the world of business as well.
Business owners are likely to use escrow at some point in the life of their company. That can take shape in a variety of ways, from the purchase of commercial properties to the process of buying or selling a business.
Escrow Accounts for Buying or Selling a Business
Escrow comes into play with large transactions, when there’s an exchange of significant amounts of money or high-dollar assets, and it’s intended to hedge against risk. If a company agrees to pay a large sum for a product or service, they want to make sure they get what they pay for, and vice versa. So, it stands to reason that firms will use escrow if they ever buy or sell a business.
The sale of a business can be a lengthy and complex process, and the resulting deal can contain thousands of stipulations. Escrow accounts for business ensure that funds are secured while all parties fulfill their respective obligations. When the transaction is complete, the secured funds are released to the seller as contracted.
Escrow Accounts for Buying or Selling Other Assets
Whether a business is buying assets to grow or selling them to streamline, they’ll likely need escrow. Assets can include anything from equipment to products or even intellectual property, and just as it does in the sale of a business, escrow ensures the exchange of assets transpires as intended.
For example, an organization selling $1M worth of construction equipment would want to ensure the funds are available from the buyer before beginning preparations to deliver the product. The buyer, on the other hand, wants to ensure they get the equipment they purchased before they pay such a large sum. Escrow gives the seller peace of mind that the money is ready and waiting and allows the buyer to rest easy – knowing that they won’t part with their money unless they get the asset they’ve purchased.
This is especially important in the world of online transactions. Escrow adds an air of legitimacy in an environment that can leave both buyers and sellers at significant risk.
Buying and Selling Commercial Property
While escrow is important in the realm of residential real estate, it is perhaps more critical in commercial real estate, where the deals are notoriously complex and negotiated between legal entities rather than individuals. Rather than simply transferring ownership from one party to the other, companies are often working overtime to navigate the transfer of deeds, environmental reports, zoning, warranties, and other documents.
When firms decide to buy or sell a commercial building, they use an escrow account to ensure that all the terms have been met before the sale is deemed complete.
Choosing A Business Escrow Agent
Business escrow accounts are vital to many different business transactions, but not all escrow agents are created equal. Companies should seek an escrow agent that can mitigate transaction risk while also providing the ultimate safety for escrow cash and top-notch service.
ADM Business Escrow – Earn More, Risk Less®
At the American Deposit Management Co. [ADM], we prioritize the safety of our clients’ money above all else. That’s why we offer fintech powered escrow services designed to help businesses stay protected.
Our proprietary technology ensures that business escrow funds have access to full FDIC / NCUA insurance through our vast network of financial institutions. We accomplish all of this with a single deposit and a single monthly statement.
Want to learn more about business escrow by ADM? Visit our Settlement & Escrow page or contact us today.
*American Deposit Management Co. is not an FDIC/NCUA-insured institution. FDIC/NCUA deposit coverage only protects against the failure of an FDIC/NCUA-insured depository institution.