Owner-Financed Business Sales — Seller Carry Notes Done Right
Selling with owner financing? Get higher prices and broaden your buyer pool — if structured correctly.
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Owner financing (also called 'seller carry-back') is a common feature of small business sales. Done right, seller financing widens your buyer pool, accelerates closes, and often results in higher gross sale prices. Done poorly, it leaves you holding a defaulted note from a buyer who tanked your business. Exit Clue structures owner-financed deals with the right collateral, the right covenants, and the right note-pricing — so you maximize value without taking unnecessary risk.
Step-by-Step
- Step 1
Define the Mix
Typical SBA-financed sales include 5–10% seller note. All-owner-financed sales might be 25–50% seller note. Cash-only deals exist but limit your buyer pool.
- Step 2
Set Note Terms
Interest rate (typically 6–9%), term (3–7 years), payment frequency (monthly), amortization schedule. Higher rates compensate for risk.
- Step 3
Secure the Note
UCC-1 on business assets, personal guarantee from buyer, pledge of stock, real estate cross-collateralization. Belt and suspenders.
- Step 4
Add Protective Covenants
Financial reporting requirements, no-additional-debt clauses, change-of-control restrictions, default triggers, accelerated payment options.
Pitfalls to Avoid
- !Setting interest rate too low — leaves money on the table.
- !Failing to require personal guarantee — buyer LLC can fold and walk away.
- !Not getting financial reporting covenants — you'll never know default is coming.
- !Underestimating tax impact of installment sales (can also be a benefit).
- !Overestimating buyer's ability to service the note while running the business.
- !Failing to plan for note default scenarios — what's your remedy?
Frequently Asked Questions
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