Get Your Business Funded: Creative Methods for Getting the Money You Need

Seller Financing Deals Explained

Seller financing is where an owner of a business agrees to carry a promissory note as whole or (far more often) partial payment for the sale of the business. This sort of financing is well-known in the real estate world where the owner of a home agrees to “carry the paper” for the buyer so that the buyer can more easily qualify for a conventional loan for the remainder. The homeowner's note is usually recorded as a second mortgage and is paid off in due time. The same idea is at play with owner financing in the sale of a business. The owner carries the paper and is paid off over time.

Seller financing can occur in all sorts of situations:

• Where the purchase price is so high that an all-cash purchase is difficult. Typically, this is where the business is worth $100,000 or more.
• Where the seller is very motivated to sell.
• Where the seller likes the buyer but the buyer does not have the means to purchase the business.

There are, of course, plenty of other reasons and situations where the seller might finance the sale of his or her own business.

How much should you expect the seller to finance and what might the deal look like? It really all depends upon the parties involved. The seller might finance anywhere from 25 to 75 percent of the purchase, and yes, 100 percent deals are possible, albeit uncommon. The seller will usually hold out for more of his asking price if he agrees to carry a note. The interest rate you should expect to pay should be ...