Seller Financing: When You Finance Part of the Purchase Price Yourself

If a buyer doesn't have full access to raise the entire purchase price in cash, seller financing is one of the most common solutions — and it's a model worth knowing, whether you're the buyer or the seller.

What is seller financing?

Seller financing means you as seller accept that part of the purchase price isn't paid in cash at takeover, but instead over time — effectively as a loan from you to the buyer, often formalized as a promissory note with an agreed interest rate and repayment schedule.

Why would a seller do this?

• Makes the deal possible: If the buyer can't raise the full amount via bank or equity, seller financing can be the difference between whether the deal can be completed at all.
• Signals trust: That you as seller are willing to wait for part of the payment signals to the buyer — and possibly a bank financing the rest — that you yourself believe in the business's future.
• Can lead to a better total price: If you're flexible about the payment structure, it can enable you to negotiate a higher total price than if you insist on full cash payment immediately.

What's the risk for you as seller?

The most obvious risk is that the buyer can't pay the installments as agreed — leaving you with a claim against a business you no longer own or control. It's therefore crucial to secure the debt, for example with a pledge over the business's assets or shares, and to have clear, written terms for what happens in the event of non-payment.

What should a seller financing agreement contain?

• Amount and repayment schedule: How much, over how long, and with which installment dates.
• Interest: A market-conforming rate that compensates you for the risk of waiting for payment.
• Security: A pledge or other security giving you genuine coverage if the buyer doesn't pay.
• Consequences of default: What happens if an installment payment is missed — including whether the entire remaining debt then falls due immediately.

How does it differ from an earn-out?

Seller financing and an earn-out are often confused, but are fundamentally different: seller financing is a fixed, agreed amount simply paid over time as a loan — independent of how the business performs afterward. An earn-out, by contrast, is conditional on the business's future performance — the payment can become larger or smaller, depending on the results after takeover.

Is it common in smaller deals?

Yes, particularly in deals where the buyer is an individual or a smaller business without access to full bank financing. In small and medium-sized business deals, seller financing is one of the most widespread ways to bridge the gap between the buyer's financing options and the seller's price expectations.

Frequently asked questions

Is seller financing the same as an earn-out?

No. Seller financing is a fixed, agreed amount paid over time as a loan. An earn-out depends on the business's future results and can therefore end up higher or lower than expected.

How do I, as seller, make sure I get the money?

Agree on security — for example a pledge over the business's assets or shares — and get clear terms for what happens if a payment is missed.

Can I combine seller financing with a bank loan to the buyer?

Yes, that's actually a common model — the bank finances part of the purchase price, while you as seller finance the rest, which often makes it easier to get the bank on board with the deal in the first place.

Considering seller financing as part of your deal? Book a no-obligation call if you'd like help structuring and securing the agreement correctly.