What is Seller Financing?
Seller financing (also called a "seller note") is when the business seller provides a loan to the buyer to cover a portion of the purchase price—typically 20-50% of the deal value.
How Seller Financing Works
Instead of paying 100% at closing, the buyer makes a down payment (often 50-80% of purchase price) and signs a promissory note for the balance. The seller receives monthly payments with interest over 5-7 years.
Typical Seller Financing Terms
- Loan amount: 20-50% of purchase price
- Term: 5-7 years
- Interest rate: 6-10% (often tied to prime plus margin)
- Security: Personal guarantee, sometimes UCC filing on assets
- Standby provision: Payments pause if cash flow drops below threshold
Why Sellers Offer Financing
- Larger buyer pool: Fewer buyers have 100% cash available
- Higher sale price: Financing often enables higher valuations
- Tax benefits: Installment sale treatment defers capital gains
- Confidence signal: Shows belief in business's continued success
Seller Financing in Trade Business Acquisitions
For HVAC, plumbing, and electrical businesses, seller financing is common because recurring service revenue provides predictable cash flow to service the debt. Sellers often appreciate staying involved during transition while earning interest income.
Find Motivated Sellers
LegacyScout identifies retiring owners who are motivated to negotiate favorable terms.
Start Free Search →