When founders hear "seller financing," many instinctively resist. Why should I finance the buyer? I want my money now. These reactions are understandable, but they often leave money on the table.
After completing numerous micro SaaS acquisitions, we've found that deals with seller financing components tend to work better for everyone—and often result in higher total payouts for founders.
What Is Seller Financing?
Seller financing means the seller provides a loan to the buyer to cover part of the purchase price. Instead of receiving the full amount at closing, you receive a portion upfront and the remainder over time, typically with interest.
For example, on a $100,000 acquisition:
- All-cash deal: $100,000 at closing
- With seller financing: $70,000 at closing + $35,000 over 18 months (including 8% interest)
In this example, the seller financing deal results in $5,000 more total compensation, plus ongoing involvement to ensure a smooth transition.
Why Buyers Prefer Seller Financing
From a buyer's perspective, seller financing reduces risk significantly:
Aligned Incentives
When the seller has money on the line post-acquisition, they're motivated to ensure a successful transition. They'll be more thorough in documentation, more available for questions, and more invested in the buyer's success.
Validation of Projections
If a seller truly believes their business will continue performing well, accepting seller financing demonstrates that confidence. It signals to buyers that the seller isn't just trying to exit before problems emerge.
Capital Efficiency
For buyers acquiring multiple businesses, seller financing helps preserve capital for operations and future acquisitions. This often means buyers can move faster and with more certainty.
Why Sellers Should Consider It
Beyond just closing the deal, seller financing offers tangible benefits:
Higher Total Valuation
Buyers typically pay more when seller financing is involved because their risk is reduced. A 10-20% premium on total value is common for deals with reasonable seller financing terms.
Favorable Interest Rates
Seller notes typically carry interest rates of 6-10%—better than most investment returns with comparable security. Your note is typically secured by the business assets you know intimately.
Tax Advantages
Spreading income across multiple tax years can reduce your overall tax burden. Consult with a tax professional, but installment sales often have significant advantages over lump-sum payments.
Faster Deal Closure
Deals with seller financing often close faster because buyers don't need to secure external financing. Less paperwork, fewer delays, more certainty.
| Factor | All Cash | With Seller Financing |
|---|---|---|
| Total Payout | Base valuation | Often 10-20% higher |
| Time to Close | Longer (financing required) | Faster |
| Tax Treatment | Full tax in year 1 | Spread across years |
| Buyer Pool | Limited to cash buyers | Larger pool of qualified buyers |
| Transition Support | Less incentive | Aligned incentives |
Common Seller Financing Structures
Standard Seller Note
The most straightforward structure: a promissory note with fixed monthly payments over 12-24 months. Interest rates typically range from 6-10%. Payments begin immediately after closing.
Deferred Payment
Similar to a seller note, but with a delay before payments begin—typically 3-6 months. This gives the buyer time to stabilize operations before cash outflows increase.
Earnouts
Additional payments tied to business performance post-acquisition. Common triggers include hitting MRR targets, retaining key customers, or achieving growth milestones. Earnouts can significantly increase total payout but add complexity.
Hybrid Structures
Many deals combine elements: 60% cash at closing, 25% seller note over 18 months, and 15% earnout based on year-one growth. These structures balance immediate liquidity with upside potential.
Our Typical Structure
For most acquisitions, we offer 60-80% cash at closing with the remainder as a seller note over 12-24 months at competitive interest rates. We're flexible and happy to discuss structures that work for your situation.
Protecting Yourself as a Seller
Seller financing does carry risk. Here's how to protect yourself:
Security Interest
Your seller note should be secured by the business assets. If the buyer defaults, you can reclaim the business. This is standard practice and non-negotiable.
Personal Guarantees
For individual buyers, require a personal guarantee on the note. This adds another layer of protection beyond just the business assets.
Clear Default Terms
Define exactly what constitutes default and what your remedies are. Include grace periods, cure rights, and acceleration clauses.
Due Diligence on the Buyer
Just as buyers evaluate sellers, you should evaluate buyers. Ask about their experience, their plans for the business, and their financial capacity. Request references from previous acquisitions if applicable.
Red Flags to Watch For
- Excessive seller financing requests: If a buyer wants more than 50% seller financed, question their financial capacity
- Vague security terms: Insist on clear, documented security interest
- Long payment terms: Notes beyond 24 months increase your risk exposure
- No personal guarantee: For individual buyers, this is a warning sign
- Unusual earnout triggers: Make sure earnout conditions are clearly defined and measurable
Making the Decision
Seller financing isn't right for every situation. Consider your personal circumstances:
- Need for immediate liquidity: If you need all cash now for another venture or personal reasons, that's valid
- Confidence in the business: If you believe the business will continue performing well, seller financing is lower risk
- Trust in the buyer: Your comfort with the buyer matters—you'll have an ongoing relationship
- Tax situation: Consult with a tax professional about your specific circumstances
The best deals happen when both parties feel they've won. Seller financing, structured properly, creates exactly that dynamic.
Ready to Discuss Your Exit?
We're flexible on deal structure and happy to find terms that work for your situation.
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