How Much Seller Financing Will I Have to Carry?

The offer is real and only two thirds of it is cash

A 12-person plumbing company at about $2.6M in revenue gets a first offer after four months on the market. The owner reads the number, likes it, then reads the structure and stops.

Roughly a third of it is a note he carries for several years. His first reaction is that the buyer is not really funded.

How much seller financing a sale requires depends on how risky the earnings look without you, not on a fixed market percentage. The note is the price a buyer and their lender put on the chance that the business declines after you leave, so the size of it is mostly a statement about the business rather than about the buyer's funding.

His buyer was funded. The buyer's lender simply wanted the seller to share the risk on a business where the owner personally priced every replacement job.

The note is a price on risk, not a market constant

Sellers hear a percentage and treat it as the way things are done. It is a negotiated number and it varies widely between two businesses of the same size in the same trade.

The buyer's lender is the loudest voice in it. SBA 7(a) lending runs at a median term of 120 months and an FY2025 median rate of 9.50%, with 84.4% of loans carrying variable rates, so the lender is underwriting a decade of exposure and prices caution accordingly.

Read the note as feedback rather than as a term. A large note is the market telling you which risks it can see in your business.

That reframe is useful because it makes the number movable. A term you cannot influence is a fact, and a risk price is a work list.

A large note is the market telling you which risks it can see.

Four things move the number, three of which are yours

The fourth is the buyer's lender and it is out of your hands. The first three are not.

• Owner dependence. The single largest input. A business where the owner prices, quotes and decides everything is priced as a business that might not survive the handover.
• Records quality. Three years of clean, separated statements reduces the note more reliably than almost anything else, and it is the slowest to fix.
• Customer concentration. A large account held personally by the seller raises the note, because the lender is underwriting the account leaving.
• The buyer's lender terms. Their appetite, their programme, their read of the trade. Yours to work around rather than to change.

The plumbing owner's note was sized almost entirely by the first one. His replacement quoting was in his head, and diligence had established that clearly.

The same input drives the headline price as well as the structure. On a $300,000-SDE business the gap between an owner-dependent sale and an owner-light one is $555,000 on identical earnings, so dependence is charged twice, once in the price and once in the carry.

Where that risk actually gets discovered is not in the financials. Buyers talk to your employees, and the note gets sized after those conversations rather than before them.

Why refusing any note usually costs you

The instinct is to demand all cash. Sellers who hold that line frequently end up with a lower total price rather than more cash at closing.

Two reasons, and both are about signal. A seller unwilling to carry anything is telling the buyer they do not expect the business to perform without them, which is the exact fear the note exists to address.

The second is practical. Removing the seller note removes the buyer's cheapest capital, so the buyer either offers less, walks, or comes back with an earnout that is worse for the seller in almost every way.

A modest note held by a seller who is confident reads as confidence, and confidence is scarce in these conversations. That is worth real money at the top-line number.

None of this is legal or tax advice, and the documents are a matter for your own counsel. What is being discussed here is the operating logic behind the number.

The structure sellers are often offered as an alternative is worse for most of them. Earnouts shift performance risk onto the seller with far less control than a note does.

What to negotiate instead of the size

Once you accept that a note is likely, the size is the least interesting variable. Four others matter more to how the next few years feel.

Term first. A shorter note with a slightly larger balance is usually better than a long one, because your exposure ends sooner.

Then the security and the standstill terms, which decide what you can actually do if payments stop. Then the trigger conditions, meaning what counts as default and what happens next.

And the rate, last, which sellers argue about first and which moves the total least. On a note of this size the rate is worth less than the term and far less than the security.

The full terms layer, and what each one means in practice, is seller financing terms. Read it before the first counteroffer rather than during it.

What the buyer's own lender is imposing is worth understanding too, since much of the structure originates there. SBA 7(a) requirements explain constraints your buyer cannot negotiate away either.

The most direct way to shrink the note is to remove the dependence before you list. A worked example of exactly that is getting techs to quote a replacement the way you would, which is the same problem the plumbing owner had.

Ask your broker or your buyer which specific risk the note is pricing. The answer is a work list, and most of it is fixable in the quarters before you list.

The free Keystone diagnostic is 18 questions and about four minutes. It returns three scores and an estimated sale price, calibrated against 10 years of BizBuySell Insight Reports and 1.6M+ SBA 7(a) loan records, so you can see the dependence a lender will price before a lender prices it.

Get your three scores and an estimated sale price, free, at https://app.trykeystone.io.

One reading tells you what is driving the risk today. Watching it across the quarters before you list is how the note gets smaller, and the paid tier keeps that record.

Current tiers and what each one includes are on the pricing page.

FAQ

How much seller financing does a small business sale typically require?

It depends on how risky the earnings look without the owner rather than on a fixed market percentage. The note is the price a buyer and their lender put on the chance the business declines after the seller leaves, so it varies widely between similar businesses.

Do I have to finance the sale of my business?

Usually some, and refusing entirely often lowers the total price rather than raising the cash. A seller unwilling to carry anything signals that they do not expect the business to perform without them, which is exactly the fear the note exists to answer.

What makes a seller note larger?

Owner dependence first, then records quality and customer concentration, plus the buyer's lender terms which you cannot influence. The first three are all fixable in the quarters before you list.

What should I negotiate if I have to carry a note?

Term, security and standstill terms, and the default triggers, roughly in that order. The interest rate is what sellers argue about first and it moves the total least.