Seller Financing Options

What Is Seller Financing?

Seller financing means you act as the lender for a portion of the purchase price. The buyer pays a down payment at closing, then makes regular payments — principal plus interest — to you over an agreed period.

A typical structure involves the buyer paying 70–80% at closing (via their own equity plus an SBA or conventional loan) and the seller financing the remaining 20–30% via a promissory note.

Seller notes are typically subordinated to any bank debt — the bank gets paid first if the business defaults. This is a real risk, which is why note terms matter enormously.

Pros & Cons of Seller Financing

✓ Advantages for the Seller

Earn 6–8% annual interest on the financed portion — better than most savings vehicles.

Access a larger buyer pool, potentially driving competitive offers and a higher price.

Deals often close faster with seller financing filling a gap — fewer lender hurdles.

Installment sale treatment may spread your capital gains tax liability over multiple years.

Signals confidence in the business, which justifies a premium and reassures buyers.

✗ Risks to Consider

If the new owner struggles, you may not receive all payments — and reclaiming the business is difficult.

You remain financially tied to the business for years, limiting your own flexibility.

The seller note is subordinated to bank debt — banks get paid first in a default.

Requires properly drafted legal documents — promissory note, security agreement, personal guarantee.

Common Scenarios

When Seller Financing Makes Sense

SBA Loan Standby Note Requirement

SBA lenders often require the seller to carry a standby note — typically 10–15% of the purchase price — as a condition of loan approval. Payments on this note may be deferred for 24 months. It's a common structure in well-run SBA transactions that ultimately benefits both parties.

Bridging a Valuation Gap

When seller and buyer can't fully agree on value, a seller note can close the gap. The seller gets the higher price they want; the buyer pays the premium over time — sometimes with performance contingencies built in.

Backing a Strong Operator Without Full Capital

Some of the best buyers are highly capable operators who lack the capital for an all-cash deal. Seller financing allows you to sell to the person most likely to succeed — protecting the business you built and maximizing the chance your note gets repaid.

Earnout for Future Performance

When part of your business's value depends on a future outcome — a contract renewal, pending product launch, or key employee retention — an earnout lets you capture that upside if it materializes, without the buyer paying for something that hasn't happened yet.

How to Protect Yourself as a Seller-Lender

Always require a personal guarantee from the buyer — this holds them personally liable, not just the business entity.

Secure the note with a first or second lien on business assets where possible, giving you recourse in a default scenario.

Require regular financial reporting so you can monitor business health during the repayment period.

Work with a business attorney to draft the promissory note, security agreement, and guarantee documents properly.

Consider a life insurance assignment on the buyer, so the note is paid in the event of their death.