Sellers often prefer to finance their own business sale because ‘playing bank’ can be a smart strategy to achieve the highest possible purchase price. But, even when they don’t want to, the realities of the sale often force them into it. Buyers need and want seller financing.
Sellers typically finance from 30% to 70% of the selling price. They usually take an interest rate below prevailing bank rates. Seller note terms are usually easier to negotiate than bank note terms. Sellers are usually more flexible because they understand the needs of the businesses they sell.
Sometimes, banks will only participate when there is a large amount of seller financing to indicate that the business is sound in the eyes of the seller.
Keep in mind, however, that sellers who are willing to finance buyers, like any other lenders, are also going to want a security interest (like a first mortgage on real estate) that makes sense to them. Seller are very reluctant to finance large sums if they are forced to accept a security interest which is subordinate to that of another lender.