What is seller financing?

If you are ready to sell your business, then seller financing may include a variety of advantages for both you and the buyer. Business.com notes that seller financing eliminates the need for additional lenders and allows property owners to finance the sale of the business directly to the buyer. 

Learning the facts about seller financing may allow you to sell your business with confidence and avoid some common financing problems that sometimes arise during this type of transaction. 

A solution to financing problems

If your buyer has limited traditional means of financing the purchase of your business, then seller financing may assist you both. A buyer may not have the means to obtain this kind of loan for a variety of reasons, including: 

  • A limited credit history  
  • Limited income  
  • No co-signers available  

Seller financing can eliminate these issues and allow the sale to proceed; however, you may want to outline your contract carefully to ensure there are no financial loopholes, as this can protect your interests. 

Financing is usually short-term

One advantage for you as the seller is that this type of financing usually lasts no longer than five to seven years, which allows you to generate income via the payments without the heavy burden of managing a financed deal for decades to come. As the seller, you can include a balloon payment at the end of the financing term and allow the buyer to complete the purchase of the business in one lump sum. 

Interest fees for seller financing are often comparable to those offered by traditional lenders. Sellers who wish to refinance their loans may find competitive offers once they consistently make their payments and build a positive credit history.