Seller financing means the seller takes part of the price over time, out of the business's own cash flow. It is the most common way small acquisitions bridge the gap between what a buyer has and what a business is worth.
The shape of a typical deal
Component | Typical share | Notes |
|---|---|---|
Cash at close | 50–70% | Held in escrow until assets transfer |
Seller note | 30–50% | Paid monthly over 12–36 months |
Interest | 6–10% | Sometimes zero on short terms |
On a $200,000 business: $130,000 at close, and $70,000 paid over 24 months at 8%, roughly $3,170 a month. If the business earns $5,500 a month, it services its own purchase and still pays the new owner.
Why a seller would agree
A higher total price. Sellers routinely accept 10–20% more headline value in exchange for taking part of it over time.
A bigger buyer pool. Cash-only shrinks the market to people with the full amount liquid.
Tax treatment, in some jurisdictions, from spreading proceeds across years. Worth actual advice, not an article.
Speed. Financed deals close faster than ones waiting on a lender.
What the seller will want in return
Security over the assets — if you default, the business reverts.
A personal guarantee, on smaller deals. Read this carefully; it's you, not your company.
Reporting — monthly revenue visibility until the note is paid.
Restrictions — often a clause preventing you reselling before the note clears.
The buyer's real risk
You are betting the business performs well enough to service the note. If revenue drops 30% in month four, the payment doesn't. Model the downside before you sign: what does the note cost as a percentage of profit if revenue falls by a third?
A note consuming more than about 50% of monthly profit leaves no room for the surprises that always arrive in the first year. Below 35% is comfortable.
The clause worth negotiating hardest
A revenue-linked adjustment: if verified revenue falls below an agreed threshold through no fault of yours, payments step down proportionally. Sellers resist it, but it aligns both sides with the truth of the business rather than the optimism of the deal, and a confident seller can afford to offer it.