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What is the best method to protect the deposit I put down on the business I am purchasing?

What is the best method to protect the deposit I put down on the business I am purchasing?

Q: What is the earnest money deposit for buying a business?

An earnest money deposit is a sum of money that a buyer provides to a seller to demonstrate their commitment to purchasing a business. This deposit is usually held in escrow and is applied towards the purchase price at closing, provided the transaction proceeds as agreed.

Q: Is a good faith payment refundable?

A good faith payment, or earnest money deposit, may be refundable depending on the terms of the purchase agreement. If the buyer cannot secure financing or if there are issues with the property, they may receive their deposit back. However, if the buyer defaults on the agreement, they may lose the deposit.

Q: Is a good faith deposit refundable?

Yes, a good faith deposit can be refundable if certain conditions are met, such as failure to obtain financing or if the seller cannot provide clear title to the property. The specific terms regarding refundability should be clearly outlined in the purchase agreement.

Q: Who keeps earnest money if a deal falls through?

If a deal falls through, who keeps the earnest money depends on the terms of the purchase agreement. Typically, if the buyer has a valid reason for backing out, they may reclaim their deposit. Conversely, if the buyer defaults without cause, the seller may retain the earnest money.

Full question:

I am entering into an agreement to purchase a small retail business from the current owner and he requested a small deposit as good faith in order to take it off the market. I don’t want to lose this business opportunity however, I want to protect myself and not lose the binder if the deal does not got to formal contract. The seller requested a deposit of $10,000? Is there a specific form I can use to protect my deposit? Does the seller cash the deposit/check and deposit the funds into an escrow account?

Category: Contracts
Subcategory: BuySell Agreements
Date: 04/07/2025
State: New York

Answer:

Sample Deposit Clause:

Buyers have deposited with Sellers the sum of $__________as earnest
money. The same is to be applied to the cash down payment on closing of
this transaction. Should Buyers require approval for a specified loan for any
part of the purchase price, and after applying therefore in good faith, be
unable to secure such loan, then the earnest money shall be returned in full
to Buyers. However, if within ___days Buyers refuse to diligently pursue
loan approval, or fail or refuse within ____days after the issuance of a loan
commitment, to execute all documents necessary for said loan, Buyers shall
be considered in default under the terms of this contract. This contract shall
expire on (date) at (time). If Buyer has not performed under the contract by
said date, Sellers shall be entitled to the earnest money without reduction.
Provided however, if the title to the property is defective, then the earnest
money will be returned to the Buyers.

How the funds are held (e.g., escrow account) is negotiable.

This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.

FAQs

Does a good faith deposit go towards a down payment?

Yes, a good faith deposit, often referred to as earnest money, typically goes towards the down payment of the purchase price when the transaction closes. It shows the seller that the buyer is serious about the purchase and is usually credited at closing.

What is the earnest money deposit for buying a business?

Can a buyer back out of a business purchase agreement?

A buyer can back out of a business purchase agreement, but it may depend on the terms outlined in the contract. If the buyer has valid reasons, such as failing to secure financing or if there are defects in the title, they may be entitled to a refund of their deposit. However, backing out without a valid reason can result in losing the deposit.