From closing a transaction to merging or selling, a well-rounded financial and legal team can help navigate pivotal moments for a business. By taking advantage of third-party escrow services, funds can be disbursed quickly, securely and in accordance with the terms of an agreement.
A good escrow agent asks the right questions to make sure the transaction is effectively recorded with all disbursement requirements noted on the agreement. Quick turnaround time, nationwide services, competitive prices and experience can set an agent apart in the marketplace.
Both buyers and sellers benefit from leveraging third-party escrow as well as other escrow and capital-raising opportunities. Even when business valuation, buyer pre-qualification and purchase agreement negotiations have been correctly handled, setting up a secure escrow account with a financial services provider effectively serves the needs of both parties.
The intricacies of many business transactions often require much more than a formal agreement, and when a deal falls apart — especially in closing stages — the additional cost related to litigation or pursuing an alternative can create financial strain with ramifications well beyond a missed opportunity or interruption to services or operations.
How the Right Escrow Partner Can Help Streamline Transactions
A third-party escrow expert can provide personalized assistance on major business deals such as mergers and acquisitions, intellectual property sales, real estate sales and capital-raising transactions. Placing funds in escrow can help meet critical financial deadlines, avoid delayed transactions and avoid any counterparty risk associated with the transaction.
Because all terms of engagement will be unique and vary in complexity, a seller, buyer and escrow officer all may enter into a custom agreement based on the purchase agreement terms plus the particulars related to fund transfers and disbursements. The escrow agent, often in association with legal and other applicable guidance, captures and documents all instructions and transactional activity.
The third-party neutrality of the escrow account holder ensures all terms of the agreement are met, while the buyer and seller gain valuable visibility.
In the process, the buyer deposits the money, generally a total matching or exceeding the agreed terms, into the escrow account. By utilizing escrow, the funds process through wire transfer, cashiers’ check or loan transfer from a business purchase lender. The seller can immediately have confidence that the finances required for the deal are in place with the intention to see the transaction through to the end.
The buyer now also has the ability to perform ongoing due diligence on the business as soon as the escrow account is operational and through closing. This can include audits of the assets, stock and liabilities attached to the sale in addition to accounts receivable and accounts payable, equipment used in the business operations, rental agreements, vehicles, real estate properties and the registered business licenses.
How a Financial Institution Can Help
Partnering with a bank can provide a trusted and secure space for funds or assets involved in business transactions. The financial institution can play several key roles in a successful merger, acquisition or any other business deal involving escrow services:
- Custodian of funds: Banks are responsible for holding, verifying and releasing funds in escrow.
- Security measures: Banks protect escrow funds through encryption, multifactor authentication and other safeguards to prevent unauthorized access.
- Neutrality: Banks serve as a neutral third party in escrow transactions, helping to maintain fairness and impartiality.
The Vital Role of an Escrow Agent
Options to find an agent who understands the escrow process include consulting trusted peers or getting a referral from a bank, attorney or a broker dealer. This agent can draft transaction documents and closing statements while ensuring all aspects meet legal compliance requirements. An agent can also help with creating the customized escrow agreement to meet specific needs of the parties, offer risk mitigation and offer an alternative to settle disputes between parties, oversee the transfer of funds and ensure all legal documents are properly executed, and manage the disbursement process and offer sub-accounting on complex escrow transactions.
All significant transactions and deals should involve a trusted and coordinated team of professionals. An attorney’s legal expertise adds an extra layer of protection to the escrow process and ensures that transactions are conducted in a legally sound and fair manner. To prepare for significant financial chapters in a successful business journey, it’s essential to have a reliable banking and legal partner to provide input and guide decision-making. With a solid support system in place, partners can collect and process the required information to securely complete important business transactions and take the business to the next step.
Brian Crisp is regional president for Arizona at Enterprise Bank & Trust. With more than 20 years of banking experience and close ties to the Phoenix business community, he oversees all aspects of the bank’s operations in the state and facilitates the bank’s growth in the region to meet existing and prospective clients’ expanding needs.
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