For many business owners, the term “closing costs” is something they associate with real estate. But in business sales, closing costs also play an important role and can significantly impact the net proceeds a seller receives or the total investment a buyer must make. As a Los Angeles business broker, one of the questions I hear most often is: “What exactly are closing costs, and how much should I expect?” This blog will walk you through what closing costs include, why they matter, and how they can be managed effectively.
What Closing Costs Include
Closing costs are the fees and expenses required to finalize a transaction. In a business sale, these can include attorney fees, escrow charges, lender fees (for SBA loans), UCC searches, and sometimes appraisal or licensing costs. Sellers may also be responsible for broker commissions, transfer fees, and prorated expenses like rent or utilities. Buyers typically pay for due diligence costs, lender fees, and working capital reserves.
Typical Range of Costs
The total amount varies depending on deal size, financing structure, and industry. For most small-to-mid-sized business sales in Los Angeles, closing costs average between 2% and 6% of the purchase price. On a $1 million deal, that could range from $20,000 to $60,000. Both buyers and sellers must budget for these expenses upfront so they’re not surprised at closing.
Why Closing Costs Matter
Closing costs can affect deal negotiations. For instance, buyers sometimes ask sellers to contribute toward costs, especially if the business is priced at the higher end of its valuation. Lenders also want to ensure all costs are accounted for in the financing package. Being transparent about these expenses helps prevent delays and builds trust between both parties.
Managing Closing Costs Strategically
With the right planning, closing costs can be managed or even reduced. Brokers like me often negotiate which party pays which fees, ensuring fairness. Experienced attorneys and escrow officers also help streamline the process, preventing unnecessary delays that can increase expenses. The key is to work with professionals who understand business sales specifically — not just real estate — because the requirements are different.
FAQ
Q: Who usually pays closing costs in a business sale?
A: Both parties share them. Buyers cover due diligence and lender fees, while sellers often pay commissions and transfer costs.
Q: How much are closing costs on average?
A: Typically 2–6% of the purchase price, depending on deal size and financing.
Q: Can closing costs be negotiated?
A: Yes. In some cases, sellers agree to pay part of the buyer’s costs to secure a deal.
Q: Are closing costs higher with SBA loans?
A: Yes, SBA financing adds lender fees, which can increase total costs.
Q: Can Sarkis help estimate closing costs?
A: Absolutely. I provide clients with upfront estimates so there are no surprises at closing.
Closing costs are an unavoidable part of selling or buying a business, but with the right preparation, they don’t have to be overwhelming. By understanding what they include and budgeting ahead, both buyers and sellers can approach closing day with confidence.