Value and getting paid
Seller financing: get paid over time
In a seller-financed sale, you receive part of the price when the deal closes and the rest in scheduled payments, with interest, over several years. It lets a capable successor take over without having the full price on day one, and it's at the heart of a planned succession.
Calculator
Illustrative only. It assumes equal monthly payments for the whole term. Real agreements vary: payments may be tied to the business's earnings, combined with a bank loan, or arranged in stages. Your attorney and accountant should structure the terms, including tax treatment.
How a phased handover usually works
- Agree on a value and a timeline with your successor, with your own advisors.
- Down payment at closing. Often from the successor's savings, investors, or a bank loan.
- Scheduled payments to you over several years, funded largely by the business's earnings.
- You stay involved for an agreed period, training your successor and introducing them to employees and customers.
- The handover completes when the final payment is made.
Protecting yourself as the seller
Because you're being paid over time, your agreement should protect you if things go wrong. Common protections include a security interest in the business's assets, a personal guarantee from the successor, financial reporting to you during the payment period, and the right to step back in if payments stop. Your attorney will advise on what fits your situation.
Why owners choose it
- You can sell to the right person, not just whoever can write the biggest check.
- You earn interest on the amount you finance.
- You have an off-ramp instead of a cliff.
- Payments spread over several years may have tax advantages. Ask your accountant.
Common questions
What is seller financing when selling a business?
Seller financing, also called owner financing, means you let the buyer pay part of the price over time instead of all at closing. The buyer signs a promissory note and pays you in installments, with interest.
How much of the price is usually seller financed?
It varies widely from deal to deal. It's often a portion of the price, combined with a down payment and sometimes a bank loan, but in a gradual handover to a successor the share paid over time can be larger. Your advisors can help you decide what you're comfortable with.
What interest rate should I charge?
Rates are negotiated and depend on market rates, the risk, and the rest of the deal. There may also be minimum rates for tax purposes. Ask your accountant before you agree to terms.
What happens if the buyer stops paying?
That depends on your agreement. Common protections include a security interest in the business's assets, a personal guarantee, regular financial reporting, and the right to step back in. Your attorney will advise on what fits your situation.