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What is 'Seller Financing'?
Seller financing is when someone selling their business, lets the buyer pay over time instead of requiring full payment upfront.
The buyer makes regular payments directly to the seller, often with interest, until the agreed amount is paid off. This can make it easier for the buyer to afford the business, without needing a big loan from a bank. Also, the seller benefits by earning interest and potentially selling their business faster.
Approximately 90% of small business sales in the UK and US, involve some form of seller financing.
What Are The Risks?
The biggest risk is to the buyer, and being unable to keep the business afloat or scale it.
If the buyer stops making payments, the seller can take back the business or pursue legal options, depending on the terms of the financing agreement.
How Long Does It Take,
To Get My Money?
The repayment period depends entirely on the type of business, the amount it's being sold for, and it's capacity to scale.
Typically it ranges from 3 to 7 years, in large business sales, and 1-2 years in smaller business sales, depending on the agreement between the buyer and seller.
Also a down payment is often expected, usually of 5-30%.
The seller usually retains a lien or legal claim on the business, which allows them to take it back if the buyer fails to meet the payment terms. But this depends on the type of business, and it's size, too.
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