Considering Seller Financing

By Michael D. Rubin, CEO & Founder · Updated September 2026 · 743 words

Considering seller financing means deciding whether you are willing to act as your buyer's lender for part of the price, and if you are, doing the checks a bank would do and writing in the protections a bank would demand. Many sellers are surprised how often a sale involves some seller financing. Offering it can attract more buyers and support a better price, but the responsibilities that come with it are real.

This article covers the decision itself, how to vet a buyer as a lender, and the safeguards to include.

What you are agreeing to

With seller financing, the buyer pays part of the price at closing, typically from its own funds and a loan, and owes you the rest under a promissory note. You become, in effect, a creditor of the business you used to own. You receive payments with interest over the term, and you depend on the new owner's success to collect them.

Advisors often encourage sellers at least to consider it, because a seller who is willing to wait for part of the price tells buyers something important: the owner believes the company will keep performing. That signal tends to draw more serious interest, and it can help a qualified buyer whose bank will not lend the full amount.

Vet the buyer the way a bank would

When a bank lends, it reviews the borrower's finances, credit and experience. When you lend, that work falls to you and your advisors, and it should be just as thorough. If a bank or SBA lender is also lending, its own review gives you useful comfort, but its interests come first, and it will usually require your note to rank behind its loan.

• Personal financial statement and credit report for the individual buyer or the principals of a buying company.
• Source of the down payment, and how much of the buyer's own money is at stake.
• Relevant experience: has the buyer run a business like yours, or managed people and budgets at a similar scale?
• The buyer's plan for the first year, including any changes to staff, pricing or suppliers.
• Debt service: whether the company's cash flow can cover the bank loan, your note and a reasonable salary for the new owner.

Safeguards to write into the agreement

Your transaction attorney drafts the note, the security agreement and related documents, but you should know what to ask for. These terms matter as much as the interest rate; our answer on deal terms that matter beyond the purchase price covers them alongside the other provisions that decide what you actually keep.

• Security in the business assets, and a personal guarantee where possible.
• Default and cure terms: what counts as a default, how long the buyer has to fix it, and your remedies, which in some deals include the right to take the business back.
• Operating covenants, such as keeping insurance in force, holding inventory or working capital at an agreed level, and not selling major assets without consent. An inventory covenant matters most for distributors and retailers.
• Financial reporting at regular intervals, so problems surface early.
• Restrictions on new debt that would rank ahead of your note, and on selling the business before you are repaid.

Is it right for you?

Ask yourself three questions. Could you absorb the loss if the note were never paid? Would you be willing and able to step back into the business if things went wrong? And does the offer with a note leave you meaningfully better off, after tax and risk, than the best offer without one? If the answers are no, keep the note small or look for buyers with more cash. If they are yes, a well-secured note to a well-qualified buyer can be one of the most effective tools in the sale. The paperwork is heavier than in an all-cash deal, but the protections are what make the arrangement safe.

How MDR & Associates handles seller financing

MDR & Associates requires every buyer to complete a financial profile before seeing details of your company, which gives you a head start on vetting anyone who might end up owing you money. The firm can arrange SBA, conventional and seller-financed structures, described on our business financing page, and works with your attorney and CPA on the note and its protections. Common questions about deal structure are answered on our FAQ page. To start with a confidential range of value, request the free valuation snapshot.

Where this fitsHow a business sale works, step by step →

Questions owners ask next

What interest rate should I charge on a seller note?

It is negotiated, and it should reflect the risk you are taking, the security you hold and where your note ranks behind any bank loan. Your advisor can tell you what is typical for similar deals at the time, and your CPA can advise on any tax rules that affect the rate.

Should I require a personal guarantee from the buyer?

Where the buyer is an individual or a small group, a personal guarantee is common and worth asking for, because it gives the buyer strong reason to keep paying. Larger private equity buyers rarely give personal guarantees, so the note's security and covenants carry more weight in those deals.