Capital & Financing

Seller Financing

The seller is the one lender who knows exactly what they're lending against — and a seller carrying paper is a seller warranting what they sold.

  • Beginner
  • 7 min total
  • 10 chapters

What decision this helps you make: How much of your deal's capital stack belongs in a seller note — and which terms (rate, standby, security, contingencies) the negotiation should trade against price.

What this topic is

Seller financing makes the seller the lender: a down payment plus a promissory note paid from the business's own cash flow over years — negotiated capital that bridges valuation gaps, shrinks equity checks, and aligns the seller with the transition.

Why it matters

As capital, the seller note has no substitute: underwriting by the person who knows the asset best, terms drafted to the deal rather than a bank's template, and a built-in warranty — sellers who believe their numbers carry paper; sellers who won't are telling you something.

Who should learn it

Buyers assembling small-business capital stacks, and sellers weighing price against certainty and taxes.

What you will understand

  • The mechanics: down payment, note terms, security, standby behind senior debt
  • The note as warranty: why carried paper is diligence information
  • Bridging valuation gaps: converting price disagreements into terms
  • Both sides' math: buyer leverage and seller price/tax/risk tradeoffs

Prerequisites

Common misconception

"Seller financing is what buyers use when banks say no." Backwards in the deals that matter: senior lenders routinely REQUIRE a seller note in small-business acquisitions — it shrinks their exposure, keeps the seller invested in the transition, and signals that the person who knows the business best believes in its numbers enough to be paid from them. The seller note isn't the fallback capital; it's frequently the load-bearing middle of the stack, and its absence is itself information.