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. However, you may not know that 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. The need for escrow can arise 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 construction equipment worth millions of dollars would want to ensure the funds are available from the buyer before beginning preparations to deliver the product. The buyer, on the other hand, would want to ensure they receive 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. It also allows the buyer to rest easy – knowing that they won’t part with their money unless they get the assets they’ve purchased.
Escrow is especially important in the world of online transactions. An experienced escrow agent 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. This process helps the buyer secure the property during a lengthy due-diligence period and gives the seller assurance that the buyer is capable of completing the purchase. It also ensures that the seller is paid promptly after the sale concludes and the buyer receives all the appropriate ownership documentation in a timely manner.
Escrow for Mergers and Acquisitions
When companies merge or acquire another business, there is significant reputational and financial risk. Fortunately, business escrow services help to mitigate these dangers.
Like commercial property transactions, escrow gives both parties sufficient time to complete due diligence without the worry of the counterparty backing out of the deal for financial reasons. If the deal does fall through, the escrow agent ensures that assets are disbursed according to the terms of the agreement. This could include returning property to its original owner or to the counterparty to compensate for lost time and effort.
Choosing A Business Escrow Agent
Business escrow accounts are vital to many different transactions, but not all escrow agents are created equal. The right escrow agent for your company should offer three things: reduction of transaction risk, the highest level of protection from bank failure, and a full suite of services. They should also provide these benefits without setup or annual fees.
Transactional risk reduction should be a given with any reputable escrow agent. After all, escrow services were designed to mitigate risk. However, safety from bank failure, a full-service agent who can draft an agreement within one business day, and freedom from fees are more difficult to find – especially together. Fortunately, our company combines all these aspects into one unparalleled escrow experience.
Business Escrow Services From ADM
At the American Deposit Management Co. [ADM], we prioritize the safety of our clients’ cash above all else. That’s why we offer fintech powered escrow services designed to mitigate risk and help businesses stay protected.
Our proprietary technology ensures that all funds in a business escrow account have access to full FDIC / NCUA insurance – even those funds above the standard $250,000 limit. We accomplish this by spreading cash across our nationwide network of financial institutions.
This process may sound complicated, but your experience will be simple. All you need to do is open an account, deposit funds, and let our experienced customer service team handle the rest.
If you’re interested in learning 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.