Seller financing and deal terms: what owners should know

Why do deal terms matter as much as price?

Deal terms matter because they decide how much of the price you actually receive, when, and with what risk. A lower offer paid mostly in cash at closing can be worth more than a higher offer paid over many years.

Two offers with the same headline number can look very different once you add up cash at close, any money paid later, interest, taxes, adjustments and your obligations after the sale. Comparing offers on terms, not just price, is one of the most valuable things a seller can do.

What is seller financing?

Seller financing is when you, the seller, lend the buyer part of the purchase price, which they repay to you over time with interest. It is common in small business sales.

In a typical structure, the buyer pays most of the price at closing, using their own funds and a bank loan, and the seller carries a note for the rest. The note sets out the amount, interest rate, repayment term and what happens if the buyer misses payments. Seller notes in small business deals often cover a minority share of the price and are repaid over a few years, though every deal is different.

Why would I agree to seller financing?

Sellers agree to it because it often widens the pool of buyers, can support a higher price and signals confidence in the business.

Many buyers cannot fund the full price from savings and a bank loan alone. A seller note can bridge that gap. Lenders and buyers also see it as a sign that you believe the business will keep performing. In return, you take on risk: if the business struggles under new ownership, payments may slow or stop. Protections such as a personal guarantee, security over business assets and clear default terms help manage that risk.

What is an earnout?

An earnout is a part of the price that is paid later, only if the business hits agreed targets after the sale, such as revenue or profit levels. It helps bridge a gap when buyer and seller disagree on value.

Earnouts can work well when the seller is confident in growth that the buyer is not ready to pay for upfront. They also carry risk, because once the buyer controls the business, their decisions affect whether targets are met. Clear definitions, simple measures, a reasonable time frame and some say in how the business is run during the earnout period all help. Treat earnout money as possible, not certain, when comparing offers.

What is the difference between an asset sale and a stock sale?

In an asset sale, the buyer purchases the business's assets, such as equipment, inventory, goodwill and contracts, rather than the company itself. In a stock or share sale, the buyer purchases the ownership of the company, including its history and liabilities.

Many small business sales are structured as asset sales because buyers prefer to avoid unknown past liabilities and may gain tax advantages. Sellers sometimes prefer stock sales for simplicity or tax reasons. The structure, and how the price is allocated across asset categories, can noticeably change the tax each side pays. This is an area where a CPA and a lawyer earn their fees.

What other terms should I look for in an offer?

Beyond price and structure, look closely at working capital, what is included, your role after the sale and the conditions attached to the deal.

• Cash at closing: the amount you receive on the day.
• Working capital and inventory: what stays in the business and how it is valued.
• Included and excluded assets: vehicles, property, cash and receivables.
• Handover period: how long you stay, in what role, and whether you are paid.
• Non-compete: how long, how wide and where.
• Conditions: financing, lease transfer, licence approvals and due diligence.
• Escrow or holdbacks: money held back to cover claims after closing.

What is a letter of intent?

A letter of intent (LOI) is a short document that sets out the main terms of a proposed deal before the full purchase agreement is drafted. It usually covers price, structure, financing, the handover period, a target closing date and a period of exclusivity during which you agree not to negotiate with other buyers.

Most of an LOI is not legally binding, but it shapes everything that follows. Terms left vague at this stage are harder to win later, because the buyer has exclusivity and momentum. Settle the points that matter most to you, such as cash at closing and your role after the sale, before you sign.

How do I compare two offers fairly?

Compare offers by estimating what each is really worth to you after risk, timing and tax, not by the headline price.

A simple approach: list for each offer the cash at closing, any amounts paid later and their likely certainty, the tax effect of the structure, and the obligations you take on afterwards. Weight deferred money by how confident you are in receiving it. Then look at the buyer: their financing, experience and how likely they are to close. A slightly lower offer from a strong, well-funded buyer often beats a higher one that may never close.

Who should help me negotiate terms?

Most sellers negotiate terms with a broker or M&A advisor leading, a lawyer drafting and reviewing the agreements, and a CPA advising on tax and structure. A financial advisor or wealth manager can help you decide how much certainty you need from the deal for your plans after the sale.