How to Structure a Seller Financing Deal to Buy a Business
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Did you know that around 60-90% of all business acquisitions involve some form of seller financing?
With that statistic, you’d think it would be easy to negotiate seller financing — wouldn’t you?
But without a clear structure to your negotiations, you may not even get past the first hurdle.
Did you know up to 90% of business acquisitions include seller financing? Yet most buyers don’t know when to bring it up — or how to structure it properly. In this post, you’ll discover a clear 7-step framework to negotiate seller finance confidently, avoid paying 100% upfront, and use the business’s own cash flow to fund the deal. Learn how to build trust with owners, uncover their true motivations, and craft creative win-win terms that banks simply can’t match.
Questions to answer for structuring seller financing
- So, what is that first hurdle?
- At what point should you even start discussing seller financing?
- Why would a seller agree to it in the first place?
- But then, who’s actually responsible for repaying the seller finance loan?
Obviously, we have some questions to answer.
So, let’s get into it.
If we’re going to talk about negotiating seller financing, we first need to understand the basics of negotiation itself.
At its core, negotiation is simply a conversation between two or more parties, aimed at creating an outcome that meets everyone’s key interests.
In this case, the two main parties are you (the buyer) and the owner (the seller).
The “outcome” is the transfer of ownership of the business to you.
And the “agreement” covers not just the price, but also how and when that price will be paid.
Sounds obvious, right?
But here’s the truth about buying businesses:
If you’re using a bank loan, the only thing you typically get to negotiate is the price.
- The bank calls the shots on everything else:
- The deposit.
- The interest rate.
- The repayment period, and so on.
And here’s the hard fact: if you borrow from a bank, the seller gets 100% of the price upfront on completion.
Why does that matter?
It matters, because it’s usually in your best interest to hold back as much of the price at completion as reasonably possible.
Why?
For one, it shows the seller has confidence in the business they’re handing over.
But also, it gives you leverage if unexpected liabilities pop up after the sale you can offset them against what you still owe the seller.
That’s where the real control comes in where you’re not left high and dry.
So, once the price is set, the rest of the deal, especially the seller finance, is still very much on the table.
Let’s break this down into a simple seven-step process you can use to negotiate just about any seller financing deal.
Step 1 — Build Rapport
Rapport is the foundation of any good negotiation.
But with seller financing, it’s even more critical.
After all, the seller is effectively lending you money to buy their business.
Would you lend money to someone you don’t trust?
Probably not.
I always tell my students who take my course on buying million-pound businesses:
“Don’t rush to ask about seller financing.”
Think of it like dating.
You wouldn’t propose marriage on the first date, would you?
You need to spend time building rapport.
But here’s the thing, with rapport comes trust.
So, how do you build rapport?
By asking open-ended questions.
Therefore, you make it all about the seller.
Ask about their journey, their reasons for selling, what matters to them.
Not only does this build trust, but it also gives you valuable insights into their motivations.
Remember: if the seller doesn’t trust you, they may not sell to you at all, let alone agree to seller financing.
Step 2 — Buy a Profitable, Cash-Flowing Business
Here’s the truth: seller financing only works with good businesses.
Forget the myth that seller financing is just for failing companies.
Here’s the thing; the repayments for seller financing come from the business’s cash flows, not your personal bank account.
Therefore, a “dud” business, which is one that’s losing money, has declining sales, or is in a cash flow crisis, simply can’t afford to repay the seller finance.
As a rule of thumb, look for businesses with over £1 million in annual sales and at least £100,000 in profits.
But the business also needs to have good cash flows too.
On my journey to buy a million-pound business, I negotiated to buy a kitchen extractor cleaning business that was on the market for £450,000.
On paper, this business was profitable.
The seller agreed to seller finance the deal.
But here’s what happened...
- During the due diligence, I discovered that the business was having significant cash flow problems.
- It hadn’t paid its PAYE and VAT to HMRC for many months
- Therefore, it had significant liabilities.
Because of this, it would have been difficult to make this deal work using seller financing, especially at a buying price of £450,000.
Which means, your focus should be on motivated sellers.
Entrepreneurs selling their businesses because of life changes, like retirement, health problems and burnout, not because the business itself is falling apart.
Step 3 — Agree the Upfront Payment vs. the Balance
Once you’ve agreed the price, you need to figure out the split:
- How much does the seller need upfront at completion?
- How much can be paid later through seller financing?
Most sellers will say they want 100% upfront, but your job is to uncover what they really need.
Ask questions like:
- Why are you selling?
- What will you do with the money?
- Do you have debts you need to clear?
When you understand the seller's true needs, you can tailor the structure creatively.
Perhaps they only need enough upfront to cover debts, and the rest can come over time.
But why would the seller not want to agree to seller financing?
Because if they agree, it means they get to sell their business, right?
And quickly.
Because there are no complicated bank forms to complete.
There are no credit checks.
No computer to say “No.”
It’s just you and the seller agreeing on terms.
That’s it.
Step 4 — Set the Term of the Seller Financing
Next, agree on the seller financing repayment period.
Don't agree to just three years, if the business’s cash flows need five years.
Negotiate three years? Five years? Or maybe even seven or ten years?
It all depends on what the business can afford.
Remember: it’s the business that repays the seller finance, not you personally.
It would be pointless to agree a seller financing loan that the business can’t afford to repay.
Because if you did, you’d be setting yourself up to fail from the outset.
Work out the business’s cash flows, then set realistic repayments.
Make sure to leave enough headroom to pay yourself too.
Also agree on the payment frequency — monthly, quarterly, annually, or even lump sums.
If you need a spreadsheet template that will do these calculations for you, please check AquiCalc, as this will help you value the business and calculate how to finance the deal.
Step 5 — Negotiate the Interest Rate
Here’s where you have an advantage over banks.
With seller finance, you can negotiate the interest rate.
The seller’s alternative is typically putting the money in the bank, which may pay very little interest.
So, you can often offer a lower rate than a bank loan would charge.
But still make it attractive to the seller.
Step 6 — Add Special Clauses
This is where the real creativity comes in.
Examples:
- No payments for six months whilst you stabilise the business post take over (or in other words, a loan repayment holiday).
- Interest-only payments at first, to build up cash reserves.
- Linking repayments to profit milestones or adding earnout clauses.
Almost anything is negotiable, as long as both sides agree, and it’s legal.
Step 7 — Write a Heads of Terms
Finally, draft a Heads of Terms document.
But I suggest you do this when you’re with the seller, and draft the document together.
This is a simple, non-binding summary of the key terms you and the seller have agreed, like the price, payment structure, seller finance terms, timeline, etc.
This document makes life much easier for both solicitors.
It will save you and the seller time and legal fees, as it’s a document that both sides have agreed to.
Your solicitor will be able to use the Heads of Terms document to draft the final contract.
Does seller financing work?
Absolutely, seller financing works.
For example, I recently oversaw a business that was sold for £1.6 million, where the buyer paid just £75,000 upfront.
The balance was financed through seller financing.
But here’s the thing, the seller agreed to not charge interest on the loan.
The business wasn’t on the market for sale.
Try getting that kind of deal with a bank!
The beauty of seller financing is flexibility.
You can craft a deal that works for you, the seller, and the business — without jumping through bank hoops.
But importantly, you’re not handing over all the cash upfront, giving you extra protection.
But here’s the other take away about this deal, it came about because the buyer made a direct approach to the owner.
If you want to learn more about buying a business off market, read this next article about: How You Buy a Business That Isn’t for Sale.