Seller financing means you, the seller, accept part of the purchase price over time instead of all at closing. The buyer signs a promissory note and pays you principal and interest on an agreed schedule. It is common in small business sales and can help you get a better overall deal, but it carries risk you should understand.
How it typically works
- At closing, you receive a down payment, from the buyer's cash and sometimes a bank or SBA loan.
- The rest is a seller note with an interest rate, term and payment schedule.
- The note is usually secured by the business assets, and often backed by a personal guarantee from the buyer.
Why sellers agree to it
- Higher total price. Buyers can often pay more when part of it is financed.
- Interest income. You earn interest on the financed amount.
- Faster deals. Less dependence on bank approval can simplify the process.
- Possible tax benefits. Spreading payments over time may allow installment sale treatment for some of the gain. Rules are specific, so talk to your CPA.
- Confidence signal. Financing shows a buyer you believe the business will keep performing.
The risks
The main risk is that the buyer stops paying. If the business struggles under new ownership, your note can be at risk. Protections commonly used include:
- A meaningful down payment.
- A security interest in business assets (filed UCC-1).
- A personal guarantee from the buyer.
- Covenants requiring insurance, financial reporting and limits on selling assets.
- Default terms that let you act if payments stop.
Seller financing with bank loans
When a bank or SBA loan is involved, the lender may set rules for the seller note, such as subordination or limits on payments for a period. Your attorney can explain how that affects you.
Combining it with real estate
If you own the building, you might sell the business with seller financing and lease the property to the buyer, or sell the property too with its own financing. Each combination changes your income and risk. See selling a business with real estate.
How we approach it
We are open to seller financing and other flexible structures, and we will explain any proposal in plain terms. You should always have your own attorney and CPA review the deal.
This guide is general information, not legal, tax or financial advice. Consult your own attorney and CPA.