How does seller financing work when buying a small business?

With seller financing, the buyer pays part of the price at closing and the owner lends the rest, which the buyer repays in monthly installments with interest, out of what the business earns. The down payment, interest rate, and length are whatever buyer and seller agree to in a signed promissory note, usually secured by the business itself.

How Seller Financing Works When Buying a Small Business

What the payments look like

Here is the math on a $100,000 business at three down payments. The owner receives the down payment at closing and the monthly payments after.

Seller-financed purchase of a $100,000 business, worked example.
Down payment	Paid at closing	Owner finances	Buyer pays
10%	$10,000	$90,000	$1,820 a month
20%	$20,000	$80,000	$1,620 a month
30%	$30,000	$70,000	$1,420 a month

Worked example, not a market rate: 8% interest over 5 years, standard monthly amortization. The buyer and the owner set their own terms.

Seller financing alongside an SBA loan

Many purchases mix a bank loan with a smaller seller note. Under the SBA's SOP 50 10, a 7(a) loan for a complete change of ownership needs the buyer to put in at least 10% of the total project cost. A seller note can count toward up to half of that 10% only if it is on full standby, meaning no payments to the owner, for the life of the SBA loan. SBA revises these rules, so confirm the current version with the lender.

Why owners agree to it

More buyers can afford the business, so it sells sooner.
The owner earns interest on the financed part.
It signals confidence: an owner willing to be paid from future earnings believes the earnings are real.

How a seller-financed deal comes together

Agree the price. Start from the business's documented earnings, so both sides can see the payments are affordable from what it makes.
Set the down payment. Enough that the buyer has real money at stake. Each owner decides what they will take.
Set the rate and term. Choose an interest rate and a number of years, then check the monthly payment against the business's earnings.
Sign a promissory note and security agreement. The note sets the payments. The security agreement gives the owner a claim on the business assets if payments stop. A personal guarantee from the buyer is common.
Close with attorneys. Each side should have a licensed attorney review the purchase agreement and the financing documents.

Sources

US Small Business Administration, SOP 50 10: Lender and Development Company Loan ProgramsVersion 8 effective June 1, 2025; version 8.1 effective October 1, 2026For a 7(a) loan that funds a complete change of ownership, the buyer must inject at least 10% of total project cost. A seller note can count toward up to half of that only if it is on full standby (no payments) for the life of the SBA loan. SBA revises this SOP; confirm the current rule with the lender.

YourBizWorth is not a broker, appraiser, or law firm. This guide is general information, not legal, tax, or lending advice.

Questions people ask

What happens if the buyer stops paying?

That depends on the signed documents. A secured note usually lets the owner claim the business assets or take the business back after a default. This is why the security agreement and a personal guarantee matter, and why an attorney should draft them.

Can seller financing be combined with an SBA loan?

Yes. A seller note can sit behind an SBA 7(a) loan. To count toward the buyer's required equity injection, SBA rules say it must be on full standby for the life of the loan and can cover no more than half of the required injection.

Who sets the interest rate and term?

The buyer and the owner, by agreement. There is no required rate for a private seller note. Run the monthly payment against the business's real earnings before agreeing.