If you are buying an existing business, seller financing can be an effective way to lower the amount of money a buyer needs out of pocket to take over. Instead of the bank providing all of the debt financing, the seller acts as a bank and holds some of the loan.  The buyer makes a payment to both the bank and seller.


Banks like to see seller financing as it demonstrates the seller has enough confidence in the buyer to put their money on the line.  In most situations, the seller is providing unsecured financing to the buyer.  There are many ways to structure payments to the seller including; a percentage of sales, monthly payments, a balloon payment a number of years down the road, interest, no interest, etc.


This does put the buyer at a bit of a disadvantage on trying to negotiate price but may be necessary to get the deal done.  Besides being able to sell the business, the seller has the opportunity to possibly lower their tax burden by taking payments over time instead of all up front and make additional money through interest.