The purchase or sale of a business can be a complicated, lengthy process, subjecting both parties to significant risk. Further, the current environment of rising costs and an uncertain economic outlook can create additional complications when buying or selling a business. Fortunately, business escrow services can reduce these risks and help ensure a smooth transition.
What is Business Escrow?
Business escrow is a service that protects buyers and sellers in complex, lengthy, or high-cost transactions. This service is administered by an escrow agent – a neutral third party that holds money, titles, or anything of value that will be exchanged during the transaction.
An escrow agent drafts instructions according to the terms of a purchase agreement and then holds assets securely until those terms are completed. If the terms are met, the escrow agent releases the assets to their intended recipient. However, if the terms are not met, escrow protects each party from the negative ramifications.
How does escrow help buyers of a business?
Escrow protects buyers from unscrupulous sellers and those who change their minds about a sale once a contract has been signed. In addition, escrow protects buyers from respectable sellers who are unable to complete a transaction due to circumstances outside of their control.
Often, the buyer of a business must provide collateral upfront to provide assurance that they will be able to complete the transaction. If the sale does not take place, the buyer could lose these assets. To prevent this, an escrow agent holds the assets until the terms of the contract are met. Only then does the seller receive their payment. On the other hand, if unforeseen circumstances impede the sale, the buyer’s assets are returned according to the terms of the escrow agreement.
There is often a lengthy timeframe for negotiations and due diligence associated with the purchase of a business. During this time, a buyer is often unable to access the collateral they used to secure the business and could lose the opportunity for their funds to earn a competitive return. However, with the advent of fintech, the right escrow agent can provide the highest level of safety – FDIC / NCUA insurance.
How does escrow help sellers of a business?
When selling a business, there is often a risk that the buyer changes their mind, discovers new information during due diligence, or is unable to pay the agreed upon amount. Escrow mitigates these risks.
When escrow is used, the buyer sets aside funds for the purchase. This collateral is kept separate from operating expenses and held by a neutral third party – the escrow agent. This separation of assets helps ensure that the buyer remains solvent during negotiations and due diligence.
If the buyer is unable or unwilling to complete the purchase, the seller is still able to receive payment according to the terms of the escrow agreement. This helps compensate sellers for lost time and expenses associated with a failed transaction.
Choosing The Right Escrow Agent When Buying or Selling a Business
Escrow services offer invaluable risk reduction for both parties involved in the sale of a business but choosing the right escrow agent can be a challenge. When determining which escrow service to use, a business should seek both safety and top-notch service.
A Business Escrow Agent Should Offer Unparalleled Safety
The function of escrow services is to reduce risk, so the funds in an escrow account should be as safe as possible. FDIC / NCUA insurance provides the ultimate protection for escrow funds because these programs are backed by the full faith and credit of the U.S. Government. However, FDIC / NCUA insurance is limited, and often, the standard $250k coverage is not enough to cover the collateral needed to purchase a business. Fortunately, fintech powered escrow services can provide access to extended FDIC / NCUA protection for all escrow cash, above and beyond the traditional limit.
Our company, the American Deposit Management Co. [ADM], has developed a proprietary network of financial institutions to distribute exceptionally large sums of business cash so that every penny can be protected by FDIC / NCUA insurance.
A Business Escrow Agent Should Provide Top-notch Service
When it comes to escrow, trust is key. As such, businesses should partner with an experienced escrow company that offers unparalleled service. At ADM, our team is our secret sauce. Our friendly customer service team enjoys serving our customers’ cash management needs and is always eager to help.
Choosing the right escrow agent is an important decision but it doesn’t have to be a difficult one. If a business needs extended safety for escrow cash and an experienced partner, they should look no further than ADM.
Business Escrow with the American Deposit Management Company
With escrow services by ADM, businesses can mitigate the risk associated with the purchase or sale of a business. In addition, our escrow services provide access to the ultimate protection for escrow cash. Finally, our customer service team makes it easy to navigate the escrow process.
In addition to escrow, our company offers other valuable cash management services like Marketplace Banking™, Bond Proceed Management, and much more. To learn more, chat with one of our agents using the box at the bottom of your screen, or give us a call. We don’t operate a call center, and if we aren’t available, we will always return your messages.