How seller financing works when buying or selling a startup. The seller stays involved after the sale, getting paid over time instead of upfront, which can help buyers who lack full cash and gives sellers confidence in the deal.
If you have one buyer, you have no buyer. So you want to attract as many buyers as possible. And seller financing can be one of the best ways to do it. What is seller financing? In some ways, seller financing is just like any financing. Instead of selling your company for a lump sum, you agree to let the buyer spread the payment over a number of years after they put down a down payment. This is really attractive to a buyer because getting loans for acquisitions is very difficult. Where seller financing difference from say a mortgage loan is that the repayment term is much shorter, typically five to seven years maximum. If the deal size is is of over seven to eight figures, this can make sense. But generally three to 12 to 24 months is what I see for smaller acquisitions. How does it work? Your buyer might ask for seller financing or you can use it as a bargaining chip. So again, this is essentially your chance to really negotiate with the buyer on a higher price. Again, your job here is to de risk the acquisition. So if you're able to offer a more lucrative maybe they have a plan to grow the business a ton and so you can do 50% seller financing and then they can then use the revenue from the business to reinvest that into growth and then pay you over a period that you both agree on. So it could be a great way to again increase the buyer pool and really successfully sell your business. How does it work? From a legal high level, you and the buyer agree to the terms of the financing. The buyer then makes a down payment, usually at the least 25 to 30%. You and the buyer are going to want to sign a promissory note, which is basically a like you are issuing a loan to the buyer and they have a legal duty to repay that loan to you. And then the buyer makes regular payments to you as they own and grow the business. And then the buyer makes the final payment balloon after whatever the agreed timeline is and you're all set and you're both happy. So why seller financing can change your life for the better? 99% of an acquisition is finding the right buyer. Believe me when I say this is no easy task. When I sold my first business business apps, I had countless offer. Some I pursued some, others demanded too much of me and my employees and just poured years to it. So being flexible on funding, I personally really pushed for, you know, just being able to, you know, widen the pyre pool as much as possible and then get the best terms.
The Buyers Who Made the Move: What They Bought, How They Did It, and What Happened Next
