In the lower middle market, most sellers still find they must finance a portion of the sale of their business. Expect to provide anywhere from 5% to 15% seller financing. This helps close a funding gap and demonstrates that you believe in the business as a going operation.
Sellers who are confident in the buyer’s future success can look at seller financing as an investment and a tax-saving strategy. You are essentially loaning the buyer money that will be paid back, with interest. Because your debt will sit in second position to senior debt, you should expect a higher return. You receive a high fixed return on a loan that will be paid back as long as the business is solvent.
Related Article: How SBA Debt Relief Incentivizes Buyers
