What is Seller Financing (a seller note) and why do we utilize it for small-mid sized business acquisitions?
In short, seller financing is a portion of the purchase price for a business that is paid over a number of years after the transaction. This is utilized by buyers because it decreases the amount of cash we need to put at risk at the time of business close.
Because the cash is not paid at close, the seller can sometimes charge interest on the money or ask for slightly more money to be paid over the coming years.
The seller note is one of a few deal structures that we utilize in finding a deal structure that fairly compensates all parties and aligns risk.
What if we can't make payments?
Of course we never enter into a transaction if we could foresee this happening. However, If for any reason we cannot make timely payments, the seller gets the business back and we walk away with nothing.
Why should I accept seller financing for my business?
Seller financing is more or less standard for the lower mid-market.
Private equity companies who are able to pay cash for businesses are primarily interested in businesses that do over $10M in profit.
Nearly all other acquirers (including us) will ask that the seller hold a note to make the transaction more feasible.