What Is Seller Financing In Commercial Real Estate?

When it comes to selling a business, one question almost always comes up: What is seller financing? It’s a topic that can make or break a deal, yet many buyers and sellers approach it without fully understanding how it works or how to use seller-financed options to their advantage.

Whether you’re exploring how to get seller financing for a business or want a clearer picture of the process, this guide breaks it down. We’ll explain what seller financing means, when and why it’s used, and what both parties should consider. We’ll also share a seller financing example that illustrates how it all comes together.

What Is Seller Financing in a Business Sale?

Seller financing, also called owner financing, occurs when the business owner agrees to accept part of the purchase price in payments over time rather than receiving the full amount in cash at closing. In this arrangement, the seller essentially acts as the lender, holding a note (or sometimes a lien) while the buyer pays off the business over a set period.

For example, instead of paying $500,000 upfront to buy a business, a buyer may pay $350,000 at closing and the remaining $150,000 in installments over 3–5 years with interest. During that time, the buyer operates the business, and the seller retains the right to reclaim it if the buyer defaults.

Selling a business is a personal process. A business broker serves as a trusted advisor, asking the hard questions and vetting buyers so you don’t have to. We ask questions like:

• “What’s your experience in this industry?”
• “Are you financially qualified to make this purchase?”
• “What’s your timeline for closing the transaction?”

How Is Seller Financing Used in Business Transactions?

Seller financing is most commonly used when:

• The buyer doesn’t have enough liquid capital for the full purchase

• Traditional financing (like a bank loan) is hard to secure

• The seller wants to attract more qualified buyers

• An SBA (Small Business Administration) loan requires it as part of the deal

In fact, many SBA 7(a) loan deals require sellers to hold a 10–15% note on standby for at least two years. This means the seller doesn’t receive payments during that period, and their note is subordinate to the bank loan—making it riskier but often necessary for the deal to move forward.

Seller Financing Example in Action

Imagine a buyer purchasing a business for $1 million. They secure an SBA loan for $750,000 and bring $100,000 as a down payment. The remaining $150,000 is financed by the seller.

In this example, the seller financing portion bridges the gap between what the bank provides and what the buyer can afford upfront. It also signals the seller’s confidence in the business’s ongoing success.

Types of Seller Financing Agreements

Seller financing isn’t a one-size-fits-all arrangement. Several types of seller financing agreements can be structured depending on the needs of both the buyer and seller. Understanding the different options can help both parties negotiate terms that are realistic, beneficial, and tailored to the deal.

Here are the most common types of seller financing agreements used in business sales:

1. Promissory Note

A promissory note is the most straightforward type of seller financing. It’s a legally binding document where the buyer agrees to pay the seller a set amount over time, including interest. The note outlines the repayment schedule, interest rate, and consequences for default.

Depending on the negotiation, this type of agreement may or may not be secured by assets or personally guaranteed by the buyer.

2. Secured Note

A secured seller financing agreement is backed by collateral—usually the business itself or its assets. If the buyer defaults, the seller has the right to seize those assets or reclaim the business.

This offers more protection for the seller and is often preferred in higher-risk transactions or when the buyer has limited experience.

3. Unsecured Note

An unsecured seller note has no specific collateral backing the agreement. It is typically used when the seller has a high level of trust in the buyer or when the business has minimal tangible assets. Unsecured seller notes carry more risk for the seller and often come with higher interest rates or personal guarantees to offset that risk.

4. Contingent (or Forgivable) Note

A contingent note—also known as a forgivable note—means repayment is based on the business meeting specific performance targets. If those targets aren’t met (e.g., revenue or profit goals), the seller may receive partial payment or none at all.

This type of seller financing helps protect the buyer from overpaying if the business doesn’t perform as expected while still giving the seller a chance to earn more if it does.

5. Standby Note (Often Used with SBA Loans)

In SBA-financed deals, sellers are often required to provide a standby seller note. This means the seller agrees not to receive payments for a specified period—usually the first two years of the SBA loan term.

While the note still accrues interest (in most cases), the seller’s position is subordinate to the SBA lender, meaning they get paid only after the primary lender’s obligations are satisfied.

Questions Sellers Should Ask Before Offering Seller Financing

If you’re a business owner considering seller financing, it’s essential to think beyond the offer price.

Ask yourself:

• Will the note be secured, unsecured, or personally guaranteed?

• Will the note be on standby (especially in SBA deals)?

• Is it a contingent or forgivable note? (If contingent, what performance metrics must be met for repayment?)

• When will repayments begin—and at what interest rate?

These questions can help you mitigate risk while staying competitive in a market where buyers often expect some form of seller participation.

Understanding Both Sides of Seller Financing

Seller financing means different things to different people. Buyers and sellers often have contrasting views of its purpose and benefits. Here’s a look at both perspectives.

From the Buyer’s Perspective

Most business buyers expect some level of seller financing. Some believe a seller should be willing to finance 100% of the sale with no money down, while others aim for a 70/30 split—offering 30% down and financing the rest over several years.

Buyers often assume that if a seller agrees to financing, it means the seller:

• Believes in the future success of the business

• Will be available for support after the sale

• Has “skin in the game,” making them a vested partner in the business’s success

Buyers also appreciate forgivable seller notes, which are only paid if the business hits specific performance goals. This structure helps buyers manage risk and reduces pressure during the business transition, especially when closing costs are considered.

But What’s the Reality?

In reality, few sellers offer full seller financing to buyers they don’t know. Most require at least 70% down—especially if the buyer has no prior relationship with them.

Sellers see a sizeable down payment as a sign that the buyer is serious, financially capable, and invested in the business’s future. It also means the debt service (i.e., the amount owed in monthly payments) is lower, reducing the likelihood of default.

From the Seller’s Perspective

Many sellers are hesitant to offer seller financing—and for good reason.

Their concerns include:

• The buyer might fail to run the business effectively

• They might never receive the full payment

• The business may not have enough hard assets to repossess if payments stop

Selling a business isn’t like selling a house. If a homebuyer defaults on a mortgage, the bank can foreclose and take back the property. If a business buyer defaults, the seller might be left with a business in worse shape than when they sold it—and possibly nothing to show for it.

Some sellers only offer limited financing options, which can be a drawback for buyers seeking more flexibility. To buyers they trust or in deals backed by personal guarantees, collateral, or a sizable down payment.

Still, there are benefits sellers can’t ignore.

Advantages of Seller Financing for Sellers

So, why would a seller ever agree to seller financing?

Here are a few compelling reasons:

1. Higher Sale Price

Businesses that offer seller financing typically sell for more money. Buyers are willing to pay a premium if they don’t have to come up with the full amount upfront.

2. Wider Pool of Buyers

Offering seller financing opens the door to more potential buyers—especially those who are qualified to run the business but don’t have all the capital.

3. Interest Income

Sellers can often charge higher interest on the note than they’d earn from a savings account or CD. It’s a way to earn ongoing income post-sale.

4. Faster Closing

The sale could take months if a buyer has to wait for full bank approval. With seller financing (or partial seller financing), deals can close faster—especially if the buyer has some funds in hand and just needs help bridging the gap.

How to Get Seller Financing for a Business

If you’re a buyer interested in seller financing, here are some tips:

• Be prepared with a solid down payment (typically at least 20–30%)

• Show your experience running similar businesses or managing teams

• Offer a personal guarantee to reduce the seller’s risk

• Be open to contingencies (e.g., seller consulting or performance metrics)

• Come with a business plan and projections to inspire confidence

Pro Tip: Pairing seller financing with an SBA 7(a) loan can help you secure funding for businesses up to $5 million with as little as 5–10% down.

Alternatives to Seller Financing

Not every seller is open to financing. In some cases, other structures can still give buyers the support they need. These include:

• Holdbacks or earnouts: A portion of the purchase price is withheld and paid later based on performance.

• Employment agreements: The seller stays as a consultant or employee for a set period.

• Deferred payments: The buyer pays more over time but not through a formal note.

These structures can offer both parties the same peace of mind without the formality—or risk—of a traditional seller note.

Is Seller Financing Right for You?

When structured carefully, seller financing can be a win-win for buyers and sellers.

For buyers, it makes business ownership more accessible and reduces upfront financial strain. For sellers, it increases the chances of closing a deal, raises the potential sale price, and creates a path for ongoing income.

But like any financial agreement, it comes with risks. That’s why it’s critical that both parties clearly outline the terms, define repayment structures, and discuss contingencies before signing anything.

Whether you’re selling or buying, seller financing is more than just a funding tool—it’s a negotiation point that reflects trust, confidence, and shared goals.

Need help navigating the world of seller financing? At Crowne Atlantic Business Brokers, we’ve been helping business owners and buyers structure successful deals in Florida for over two decades. Whether you’re a buyer looking to finance your first business purchase or a seller exploring financing options to close the right deal, our award-winning team is here to guide you every step of the way.

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