Money & Financing
How Seller Financing Works
The seller acts as the bank for part of the purchase price.
Practical Explanation
Instead of getting all the money at closing, the seller agrees to be paid over time — like a mortgage from the seller. The buyer signs a promissory note, makes monthly payments (usually with interest), and the seller stays partly invested in the buyer's success. Typical seller-financed portions are 10–50% of the purchase price.
Real-World Example
A bakery sells for $300,000. The buyer puts $60,000 down, gets a $150,000 bank loan, and the seller carries a $90,000 note at 7% interest over 5 years.
Typical cash required
Less than a fully bank-financed deal — often 10–25% down.
Experience required
Seller decides; experience in the industry usually helps you get better terms.
Advantages
- ✓Lower cash at closing
- ✓Faster close than full bank underwriting
- ✓Seller stays aligned through the note period
- ✓Negotiable terms (rate, length, standby, balloon)
Risks
- !Seller may require a personal guarantee
- !Default can mean the seller reclaims the business
- !Interest payments reduce cash flow
Frequently Asked Questions
Is seller financing legal?
Yes, it is a normal, common structure used in the majority of small-business transactions.
What rate is typical?
Usually 5–8%, often near the prevailing SBA rate, sometimes lower if the seller is motivated.
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