Seller Financing – What You Need to Know

Mar 20, 2024Buying Businesses, Selling Businesses

Selling a business is a complex dance that requires not just a transfer of assets but also a transfer of knowledge and trust. For owners with decades of experience, the challenge lies in ensuring the new steward of the business is not only capable but also committed to its success. Enter seller financing, a mechanism that ties the fate of the seller and buyer together, fostering a unique relationship. In this blog post, I explore the dynamics of seller financing and why, in certain scenarios, it’s a bet worth taking.

The Value of Experience:

For business owners who have invested years, even decades, in building their enterprise, the transition to new ownership is not a simple handover. The depth of experience and industry insights cultivated by the seller cannot be transferred overnight. This is where seller financing steps in as a bridge, ensuring that the invaluable knowledge of the business is not lost in the transition.

Betting on the Buyer:

Seller financing is, in essence, a vote of confidence. The owner, who has a deep understanding of the intricacies of the business, is essentially betting on the buyer’s ability to not only sustain but enhance the legacy of the enterprise. This financial arrangement aligns the interests of both parties, creating a shared goal of prosperity.

Accessibility and Commitment:

One of the key concerns for buyers, especially when the business’s founder is a wealth of knowledge, is the ongoing accessibility of the seller post-sale. The fear is that, once the deal is done, the seller might be unreachable, leaving the buyer to navigate challenges alone. Seller financing addresses this by creating a mutual commitment. The seller has a vested interest in the success of the business, and this often translates to continued support and mentorship.

The Argument Against Seller Financing:

A common counterargument to seller financing is the lack of control the seller retains over the business decisions made by the new owner. What if the buyer makes poor choices that negatively impact the business? The answer lies in due diligence being a two-way street.

Two-Way Due Diligence:

Seller financing necessitates a thorough vetting process, not just from the buyer’s side but also from the sellers. The buyer is not the only one being assessed; the seller is, too. The success of the business under new ownership is contingent on the compatibility and alignment of values between the buyer and the seller. If the signs are missed during the due diligence process, it’s a shared responsibility.

I have brokered a lot of deals with sellers’ financing, I have brokered a lot of deals where the seller received all cash, and I have brokered just a few deals where no 3rd party lender was involved and 100% of the sale was owner finance.  The reason why the businesses were 100% owner financed – the finances, cash flow, and debt service coverage were not strong enough to get a bank to make a loan.  So, the business owner became the bank.  One of the deals where the seller was the bank – turned bad and the owner foreclosed on the buyer and got the business and property back.  We turned around and sold it all again.  This is not ideal but legal counsel made sure my client was protected from the “worst-case scenario”. 

When you don’t have a profitable business and you want to sell – be prepared to become the bank.


Seller financing, when approached with transparency, commitment, and a shared vision for success, can be a powerful tool in business transactions. It acknowledges the unique challenges of passing on a business with substantial experiential value and leverages financial arrangements to align the interests of both parties. The success of such deals hinges on the diligence of both buyer and seller, creating a dynamic partnership that transcends the transaction itself.