Selling a Business with Outstanding Debts: What to Know

Many SME owners assume that having outstanding debts means they cannot sell a business in Singapore. In reality, it is common for businesses to be sold with some level of existing liabilities. What matters is how those debts are structured, disclosed, and addressed during the transaction process.

Understanding how outstanding debts affect pricing, deal structure, and buyer confidence is critical. With proper preparation and professional M&A advisory support from Strategix Asia, selling a business with debts can still result in a successful and well-managed outcome.

Outstanding debts can take many forms, including:

• • Bank loans or credit facilities
  • Shareholder loans
  • Trade payables
  • Leasing obligations
  • Tax liabilities

Not all debts are treated equally during an M&A transaction. Buyers focus less on the existence of debt and more on whether the debt is manageable, transparent, and properly reflected in the purchase price.

When owners plan to sell a business in Singapore, clarity around liabilities becomes a key factor in buyer decision-making.

Buyers typically assess debts through two lenses.

First, they evaluate whether the business generates sufficient cash flow to service its obligations. A profitable business with stable cash flow is far more attractive than a debt-free business with weak earnings.

Second, buyers assess risk. Unclear, undisclosed, or poorly documented debts raise concerns and can lead to price reductions or deal delays.

Outstanding debts do not automatically reduce value, but uncertainty almost always does.

The structure of the transaction significantly influences how debts are handled.

In a share sale, the buyer acquires the company together with its assets and liabilities. This means outstanding debts usually remain within the company after completion, subject to agreed adjustments.

In an asset sale, selected assets are transferred while liabilities typically remain with the seller unless explicitly assumed by the buyer.

Experienced M&A Advisors help SME owners determine which structure is more suitable based on the type and size of debts, buyer expectations, and overall transaction objectives.

Some owners worry that disclosing debts too early may discourage buyers. In practice, the opposite is true.

Early and transparent disclosure:

• • Builds credibility with buyers
  • Prevents surprises during due diligence
  • Reduces the risk of last-minute renegotiations
  • Speeds up deal completion

When selling a business in Singapore, buyers expect a professional and structured process. Attempting to hide or downplay liabilities often leads to loss of trust and deal failure.

One of the most common misconceptions among SME owners is that debts should be ignored when discussing price. Buyers do not view it this way.

Rather than relying on a formal Valuation Report, which is typically used for compliance or reporting purposes, sellers benefit more from a pricing-focused approach that reflects how real buyers think.

At Strategix Asia, this is addressed through a structured pricing approach that helps business owners:

• • Understand how outstanding debts impact net proceeds
  • Identify which liabilities concern buyers most
  • Assess whether debts should be settled before sale or adjusted in pricing
  • Determine realistic expectations before going to market

This allows sellers to make informed decisions early, rather than reacting under pressure later

When outstanding debts are involved, due diligence becomes more detailed. Common issues that arise include:

• • Incomplete loan documentation
  • Informal shareholder loans without clear terms
  • Overdue tax filings or unresolved assessments
  • Supplier disputes or contingent liabilities

Addressing these issues before engaging buyers significantly improves transaction outcomes. M&A Advisors often work with owners to clean up documentation and clarify exposures before formal discussions begin.

There is no universal answer. In some cases, settling debts before the sale simplifies the transaction and improves buyer confidence. In other cases, retaining debt within the company may be commercially reasonable if cash flow supports it.

The decision depends on:

• • The nature and size of the debt
  • Buyer appetite
  • Impact on net sale proceeds
  • Tax and legal considerations

Professional advice is essential to avoid decisions that look beneficial short term but reduce overall value.

Selling a business with outstanding debts requires careful structuring, clear communication, and strong negotiation.

M&A Advisors play a critical role by:

• • Assessing how debts affect buyer interest
  • Advising on deal structure and pricing adjustments
  • Managing buyer expectations professionally
  • Reducing execution and reputational risk

For transactions above SGD 1 million, this level of expertise is especially important, as buyers take a more structured and commercially disciplined approach.