When you sell your business, the buyer probably isn't going to hand you a single check for the full amount on closing day. That surprises a lot of owners, but it's how most deals work. Understanding what seller financing is — and how it fits into the broader deal structure — gives you more control over the terms of your sale and helps you avoid feeling blindsided at the negotiating table.
Here's how the money actually works in a typical business acquisition.
What Is Seller Financing?
Seller financing means you, the seller, agree to let the buyer pay a portion of the purchase price over time. Instead of receiving the full amount at closing, you carry a note — essentially acting as a lender for part of the deal.
This is common. In most small business acquisitions, some amount of seller financing is part of the structure. It's not a sign that the buyer can't afford your business. It's a standard feature of how these deals get done.
Typical terms look something like this: the seller note covers 10–30% of the total purchase price, paid back over three to five years, with an agreed-upon interest rate. The note is usually subordinated to the bank's loan, meaning the bank gets paid first and your note gets paid after. Payments typically begin after closing, though some deals include a short standby period where payments are deferred while the buyer gets settled.
If you've never heard these terms before, that's normal. Most owners haven't. The important thing is understanding what you're agreeing to and why.
Why Would a Seller Agree to Finance Part of the Deal?
The natural reaction is skepticism. You built this business. You want your money. Why would you agree to wait for part of it?
There are several practical reasons.
First, seller financing can increase your total sale price. Buyers are often willing to pay more when the deal includes a seller note, because it reduces the amount they need to finance through a bank or bring as cash at closing. A higher purchase price with a portion paid over time can net you more than a lower all-cash offer.
Second, lenders often require it. If the buyer is using an SBA loan — the most common financing tool for small business acquisitions — the lender will almost always require a seller note as part of the deal. It's built into how these transactions are structured.
Third, there can be tax advantages. When you receive the purchase price over multiple years through an installment sale, you may be able to spread the capital gains tax across those years rather than taking the full hit in year one. Talk to your accountant about this — it depends on your specific situation.
And finally, a seller note signals confidence. It tells the buyer — and the lender — that you believe the business will continue to perform after you leave. That credibility can be the thing that gets a deal across the finish line.
The honest risk: you're trusting the buyer to run the business well enough to pay you. If the business declines under new ownership, your note is at risk. This is why choosing the right buyer matters as much as negotiating the right price. A higher offer from a buyer you don't trust is worth less than a fair offer from someone who knows how to operate.
How Does SBA Financing Work for Buying a Business?
The SBA 7(a) loan is the most common financing tool used in small business acquisitions. It's not a loan directly from the government — it's a loan from a commercial bank that the Small Business Administration partially guarantees, which reduces the bank's risk and makes them more willing to lend.
In a typical acquisition, the SBA loan covers 70–80% of the purchase price. The buyer puts in equity — usually 10–20% — and the seller carries a note for the remainder.
To approve the loan, the bank needs to see that the business generates enough cash flow to cover all the debt payments. This is where a metric called DSCR comes in — Debt Service Coverage Ratio. It's the ratio of the business's cash flow to its total debt obligations. Banks typically want to see a DSCR of 1.25 or higher, meaning the business produces 25% more cash than it needs to service the debt. Your EBITDA is a key input in this calculation.
SBA loans also come with specific requirements: a business appraisal, a personal guarantee from the buyer, and often a standby period on the seller note (meaning your payments are deferred for a year or two while the bank's loan takes priority). These steps add time to the process, but they also add structure and security for everyone involved.
Understanding how SBA financing works is important because it affects your timeline, your deal structure, and how much cash you receive at closing. Our process is built to work within these realities — we have established lending relationships and know how to move through SBA requirements efficiently.
How These Pieces Fit Together
A simplified example makes this concrete.
Say your business sells for $3 million. A common deal structure might look like this: the buyer secures a $2.1 million SBA loan (70% of the purchase price), you carry a $600,000 seller note (20%), and the buyer brings $300,000 in equity (10%).
At closing, you receive $2.1 million from the bank loan plus the buyer's $300,000 equity — a total of $2.4 million in cash at close. The remaining $600,000 comes to you over the next three to five years through the seller note, with interest.
The exact percentages and structure vary by deal. Some sellers carry more, some less. Some deals include earnouts — additional payments tied to business performance after the sale. The right structure depends on the size of the deal, the strength of the business, and what both parties agree to in negotiation.
The point is this: how are business acquisitions financed is not a mystery. It's a combination of bank debt, buyer equity, and seller participation. Once you understand the pieces, you can evaluate offers on their full terms — not just the headline number.
Understanding the steps involved in selling from the beginning helps you anticipate how deal structure conversations will unfold and what questions to ask.
Deal structure matters as much as price. If you want to understand your options and what a deal might look like for your specific business, let's have that conversation. No jargon, no pressure — just a clear picture of how the numbers work.