Why owner financing may be a better deal for you when selling a business

Seller financing, also known as seller carryback or owner financing, is a method of financing used in business acquisitions where the seller agrees to provide financing to the buyer instead of requiring full payment upfront.

In this arrangement, the buyer typically pays a down payment to the seller and then makes regular payments over time (usually with interest) to pay off the remaining balance of the purchase price. The seller essentially becomes the lender and holds a promissory note from the buyer as collateral.

Seller financing can be beneficial for both parties. For the seller, it can make the business more attractive to potential buyers who may not have access to traditional financing. It also allows the seller to spread out the income from the sale over time, potentially reducing tax liabilities.

For the buyer, seller financing can make it easier to acquire the business, particularly if they don't have enough capital or can't obtain financing from traditional lenders. It can also provide an opportunity for the buyer to negotiate more favorable terms and interest rates than they might get from a bank or other lender.

In some cases, the seller may also require the buyer to secure their interest in the business with collateral, such as equipment or property. This can provide additional security for the seller, as they would be able to repossess the collateral if the buyer fails to make payments as agreed.

For the buyer, using collateral can help to reduce the interest rate and improve the terms of the seller financing. However, it's important to note that the buyer would be taking on additional risk by using collateral, as they would be at risk of losing the collateral if they are unable to make payments. As with any financing arrangement, it's important for both parties to fully understand the terms and risks involved in using secured interest in the business.

Overall, seller financing can be a flexible and mutually beneficial financing option for both parties involved in a business acquisition.

About the Author: Adam Sayler is a private investor working with closely held, small businesses to prepare their companies for successful exits. He has worked with, started and sold multiple companies in various industries such as business IT services, online marketing, real estate management and affordable housing. He also worked in the capital markets of New York City, raising funding for a diverse group of hedge fund strategies.

Adam now manages his own family office through his various entities and currently spends his time working with his network of investors from around the world to prepare businesses for sale and mergers.

Adam received his BS in Electrical Engineering from Oregon State with a minor in accounting. He advises firms on all aspects of governance, systems and logistics management, hiring and capital sourcing to build the perfect team so owners can get out of the daily operations,

He spends his time in various locales around the world and enjoys sailing, downhill skiing and motorcycle riding and helping the emerging industry of decentralized finance.