Reasons for Sale
The reasons for selling a business can be divided into two main categories. The first is a sale that is planned almost from the beginning or by an owner who knows that selling is or should be a planned event. The second is exactly the opposite – unplanned; the sale is motivated by a specific event such as health, divorce, business crises, etc. However, in between the two major reasons, are a host of unpredictable ones.
A seller may not even be thinking of selling when he or she is approached by an individual, group or another company, and an attractive offer is made. The owner of a business may die, and the heirs have no interest in operating it. A company may bring in new management who decides to sell off a division or two; or maybe even decides that selling the entire business is in the best interests of everyone.
A major competitor may enter the market, forcing an owner to elect to sell. And the competition may not just be another company. The owner of a business may realize that an external threat is such that the company will lose a competitive advantage. New technology by a competitor may outdate the way a company produces its products. Two competitors may merge, placing new pressures on a company. The growth of franchising and big box stores can promote themselves on a much larger scale than a single business, no matter how good it is. National advertising can create the perception that a large business’s pricing, inventory or service is better than the smaller competitor, even if it isn’t.
Although these issues may not push a business owner or company management to consider selling, they are certainly causes for consideration. Unfortunately, most sellers fail to create an exit strategy until they are forced to. Professional athletes want to go out on top of their game, and business owners should do the same.
Keys to Improving the Value of Your Company
The first key is to have your accountant take a look at your accounting procedures and make recommendations on how to improve them. He or she may also help in preparing financial projections for the coming year(s). Getting your company’s financial house in order is very important in establishing the value of your firm.
The second key is to review the reputation, image, and marketing materials of your company. Certainly, the quality of your product or service is paramount, but how your firm presents itself to customers, clients, suppliers, etc. – and the outside world – is also very important. The appearance of your facilities and customer services – beginning with how people are treated on the telephone or in the waiting/reception area – are the kind of first impressions that are critical in dealing with your customers or clients. Don’t forget about the company’s Web site; in many cases, it is the initial introduction to your company. Now may also be the time to update your marketing materials. The image of a company can help create a happy workforce, improve customer service, and impress those that you deal with – all of which can increase the value.
A third key is to get rid of outdated inventory – sell off any extra assets such as unused or outmoded equipment. The proceeds can be used in the business. If there are any assets that should not be included in the value of the company, such as personal vehicles or real estate, you might want to separate them from the assets of the company. This is especially important if you are considering placing the company on the market. A prospective purchaser expects everything they see to be included in the sale. If a portrait of your grandfather is your personal property, delete it from any list of company furniture, fixtures, and equipment; and if the business is for sale, remove it entirely.
Another important key is to resolve any pending items. For example, if the company has a trademark on any of the important products, and the paperwork for registering is sitting on someone’s desk, now is the time to complete the filing. Trademarks, patents, copyrights, etc., can be very valuable, but only if they have been properly recorded and/or filed.
Contracts, agreements, leases, franchise agreements, and the like should be reviewed. If they need to be extended, take the appropriate action. A contract with a customer has value and if it is scheduled to expire soon, why not get it renewed now? The same is true for leases. Favorable leases for a long period of time can be a valuable asset. Do your key employees have employee agreements?
The key factors outlined above not only build value, but they also increase the bottom line. If you are considering selling your company at some point, these key issues will come back many-fold in the selling price. A professional business intermediary can help with other factors that can influence the value of the business.
One other hidden benefit of building the value of your company is that you never know when the Fortune 500 Company will come “knocking at your door” with an offer that you can’t refuse. At that point, it’s probably too late to work on some of the issues mentioned above.
Should You Offer Seller Financing When Selling Your Business?
By Troy Frank, Owner — Indiana Equity Brokers
Estimated read time: 8 min
The short answer: Offering seller financing when selling a business typically results in a higher sale price — research shows seller-financed deals close at 20–30% more than all-cash transactions. The seller carries a promissory note for a portion of the purchase price, typically at 6–10% interest over 3–7 years. The risk is real: if the buyer defaults, the seller may not recover the full amount owed. But for most Indiana sellers, the combination of a higher price, tax deferral benefits, and a larger buyer pool makes seller financing worth serious consideration.
A seller walks away from the closing table with a check. That’s how most business owners picture the sale of their company. All cash, clean break, done.
The reality is that all-cash deals are less common than sellers expect — and sellers who insist on them often leave significant money on the table. Seller financing isn’t a consolation prize. When structured correctly, it’s a tool that gets deals done at better prices with more qualified buyers.
This article covers how seller financing actually works, what terms are typical in Indiana Main Street transactions, what sellers need to protect themselves, and when seller financing makes sense — and when it doesn’t.
What Seller Financing Is (and Isn’t)
Seller financing means the seller agrees to accept part of the purchase price over time rather than all at closing. The buyer signs a promissory note — a legal agreement to repay the seller in installments, with interest, over a defined period.
The seller is not a bank. They’re not underwriting risk the way a commercial lender does. But they are extending credit, and that comes with real obligations on both sides.
What seller financing is not: a sign that the seller is desperate or that something is wrong with the business. Sellers who make that assumption often kill deals that would have closed well.
In fact, buyers sometimes view a seller’s refusal to offer any financing as a yellow flag — the reasoning being that a seller truly confident in the business’s cash flow should have no problem carrying a note. That logic isn’t always fair to sellers, but it’s a real dynamic we see at the table.
The Numbers: Why Seller-Financed Deals Close Higher
The data on this is consistent. Businesses sold with seller financing command 20–30% more than comparable businesses sold for all cash.
There are two reasons for this. First, seller financing expands the buyer pool. More buyers can participate when they don’t need 100% of the purchase price at closing. More buyers means more competition, and more competition drives price up.
Second, a seller who carries a note is signaling confidence. Buyers read seller financing as the seller’s vote in favor of the business’s future performance. That confidence has value — and buyers are willing to pay for it.
The old stat you may have seen — sellers receive approximately 86% of asking price with terms vs. about 70% for all-cash — reflects the same principle. When sellers offer flexibility, they get paid better.
Typical Seller Financing Terms in Indiana
There’s no universal standard, but here’s what we typically see on Main Street transactions in Indiana:
Down payment: Most sellers want a minimum of 50% down at closing, with the remainder financed by a seller note. Some sellers go lower — 30–40% down — when the business is strong and the buyer is well-qualified. Going below 30% down is uncommon and generally only works when paired with SBA financing.
Interest rate: Seller notes typically carry rates of 6–10%. The rate reflects the risk level — a well-qualified buyer with strong industry experience and a clean credit profile might negotiate toward the lower end. A buyer who’s newer to the industry or carrying more financing might see a higher rate. In the current rate environment, 7–8% is common.
Term: Most seller notes run 3–7 years. Shorter terms mean faster repayment and less ongoing exposure for the seller. Longer terms mean lower monthly payments for the buyer, which can help cash flow in the early years when the business is transitioning. Five years is a common middle ground on Main Street deals.
Balloon payment: Some seller notes amortize fully over the term. Others are structured with a balloon — a lump sum due at the end of the term. Balloons can be useful when the buyer expects to refinance through a bank after a few years of operating history.
Seller Financing Alongside an SBA Loan
Many Indiana acquisitions involve a combination of SBA financing and a seller note. This is one of the most common deal structures we work with.
When SBA financing is involved, the seller note must be placed on full standby during the SBA loan period. That means the seller cannot receive repayment on their note until the SBA conditions are met — typically until the SBA loan is paid in full or a certain period passes.
This is a deal point that surprises some sellers. You carry a note, but you may not see payments on it for years. The trade-off is that SBA financing allows the buyer to put down as little as 10% of the total purchase price — which dramatically expands your buyer pool and, as discussed, tends to drive the final price up.
For sellers considering a combined SBA-plus-seller-note structure, our detailed post on how SBA loans work for business acquisitions in Indiana walks through the mechanics of how these deals are assembled.
How Sellers Protect Themselves
The most common seller fear about financing: the buyer stops paying. It happens. Here’s how to protect yourself.
Secure a UCC Filing
A Uniform Commercial Code (UCC) filing is a legal notice that the seller has a security interest in the business assets. If the buyer defaults, the seller has a documented claim against the assets — equipment, inventory, accounts receivable — that can be enforced. A UCC filing is standard on seller-financed transactions and should be non-negotiable.
Require a Personal Guarantee
The promissory note should be personally guaranteed by the buyer, not just by the business entity. This means if the buyer defaults, you can pursue their personal assets — not just the business’s. This is a meaningful protection, especially if the buyer has personal real estate or retirement savings.
Vet the Buyer Before You Agree
Seller financing isn’t for every buyer. Before agreeing to carry a note, look at the buyer’s relevant experience, credit history, and available capital. A buyer who has operated a similar business, brings strong industry knowledge, and has financial reserves beyond the down payment is a materially lower risk than one who doesn’t.
This is where working with an experienced broker matters. At Indiana Equity Brokers, we qualify buyers before they see confidential financial information. By the time a seller is reviewing an offer, the buyer has already been vetted. That reduces the pool of buyers who reach the offer stage — but it dramatically increases the quality of the ones who do.
Structure a Right of Recourse
Your promissory note should include clear default provisions: what constitutes a default, how much notice the buyer gets, and what the seller’s remedies are. Ideally, a default allows you to accelerate the note (call the full balance due) and, if unpaid, reacquire the business assets. Have your transaction attorney draft the note — not a form you found online.
The Tax Angle: Installment Sale Treatment
One underappreciated benefit of seller financing is the installment sale tax treatment available under IRS rules. When you sell a business and receive payments over multiple years, you can report the capital gain proportionally — as you receive each payment — rather than recognizing the entire gain in the year of sale.
This can meaningfully reduce the tax hit in the closing year, especially for sellers in higher income brackets or those who have other significant income in the year of sale. Spreading the gain over 3–5 years can keep you out of the highest marginal brackets for each of those years.
This isn’t a reason to carry a note you’d otherwise refuse. But it’s a real benefit worth discussing with your CPA before you decide whether to push for all cash or accept terms. In some cases, an installment sale actually puts more money in your pocket after taxes than an all-cash deal at the same gross price would have.
For further reading on the IRS installment sale rules, the IRS publication on installment sales (Publication 537) provides the authoritative guidance.
When Seller Financing Doesn’t Make Sense
Seller financing isn’t always the right call. A few situations where it may not make sense:
You need the cash at closing. If you’re funding a retirement purchase, paying off debt, or have another specific need for the full proceeds, structuring a note creates complications. Know what you actually need from the sale before the negotiation starts.
The buyer is underqualified. If a buyer has minimal industry experience, limited personal capital, and needs seller financing to get to the minimum down payment — that’s a risk profile that may not be worth carrying. A buyer who struggles to operate the business is more likely to default.
The business has declining cash flow. Seller financing is partly a bet on the business’s future performance. If you’re carrying a note on a business with shrinking revenue or increasing costs, that note is only as good as the business’s ability to service it. If the trajectory isn’t strong, price and terms need to reflect that risk.
Deal structure is one of the most important — and most underappreciated — variables in getting a business sold at the best possible price. Our post on how deal structure affects what sellers actually keep gets into the specifics beyond just seller financing.
Frequently Asked Questions
What is seller financing in a business sale? Seller financing means the seller accepts a promissory note for part of the purchase price instead of receiving all cash at closing. The buyer repays the seller directly over a set term — typically 3 to 7 years — at an agreed interest rate. Seller financing is common in small business transactions and is not a sign of a distressed deal. It’s a standard tool that expands the buyer pool and often results in a higher final sale price.
What interest rate should I charge on a seller note? Seller notes on business sales typically carry interest rates of 6–10%. The rate reflects the buyer’s risk profile — experience, creditworthiness, and available capital — rather than market benchmark rates alone. In the current environment, most Indiana Main Street seller notes are priced at 7–8%. Your attorney or broker can help you determine a rate appropriate to the specific buyer and deal.
What happens if a buyer defaults on seller financing? If a buyer defaults on a seller note, the seller can accelerate the note (demand full repayment immediately), pursue the buyer’s personal assets if a personal guarantee is in place, and potentially reacquire the business assets through a UCC filing. The exact remedies depend on how the note and security agreement are drafted. This is why working with a transaction attorney — not a template — is essential when structuring a seller note.
Do I have to put my seller note on standby if the buyer uses SBA financing? Yes. When an SBA 7(a) loan is part of the deal, the SBA requires any seller note used as part of the buyer’s equity injection to be placed on full standby — meaning the seller cannot receive payments on the note until the SBA loan conditions are satisfied. This is non-negotiable under current SBA guidelines. The standby period can last until the SBA loan is paid in full or a defined period passes, depending on how the loan is structured.
Are there tax benefits to offering seller financing? Yes. Under IRS installment sale rules, sellers who receive payments over multiple years can report their capital gain proportionally as they receive each payment, rather than recognizing the full gain in the year of sale. This can reduce the tax liability in the closing year and may keep sellers in lower marginal brackets over several years. The benefit varies based on the seller’s overall income situation — consult a CPA before deciding on deal structure.
Is Seller Financing Right for Your Deal?
For most Indiana sellers, the answer is yes — at least partially. A seller note of 10–30% of the purchase price is standard on Main Street transactions, and refusing to offer any terms often costs more in final price than the note would have paid in interest.
The key is structuring it correctly: the right term, the right rate, a personal guarantee, a UCC filing, and a clearly written promissory note drafted by an attorney who works on M&A transactions.
If you’re considering selling your Indiana business and want to understand how deal structure — including seller financing — affects your actual net proceeds, a confidential conversation with Troy Frank costs nothing and usually takes about 20 minutes. Indiana Equity Brokers has closed more than 884 Indiana transactions and can walk you through how comparable deals in your industry have been structured.
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Strong Selling Points: Let Your Strengths Work for You
“Independent business owner” is a phrase with two meanings. Of course, it means being the owner of an independent business. But another way to look at “independent business owner” is to let this phrase define the very personality of the person at the helm. Independent. Confident. Self-assured. Strong-willed. These are vital entrepreneurial attributes, but, ironically, they can sometimes work against the business owner when it comes time to sell.
Since business owners are the type who know about selling — either products or services– and about making deals — haven’t they had to cope with suppliers, customers, and competitors throughout their business careers? — it’s not surprising that owners approach selling their businesses with these tried-and-true tactics and ideas. Sellers who have spent years building a business are often unaware of how completely different the process of selling a business is.
Savvy sellers, realizing the importance of a selling approach equal to this very important task, will depend on the guidance of a business intermediary. With professional guidance, sellers can benefit from their personal strengths instead of letting them get in the way of the selling process. The following “strong” selling points are signposts on the road leading to a successful transaction.
Price Your Business To Sell
Sellers are good “business people;” they naturally are after the best possible price for their business. Realistic pricing is perhaps the most important factor in selling from a point of strength. Understanding the marketplace, up-to-the-minute and not some high mark just past or in the possible future, is key.
The pricing of a business, different from the simpler means of valuing based on goods or services, depends on industry-tested valuation techniques, with intangibles incorporated to ensure that the business will not be underpriced. The price of a business is arrived at by a variety of factors, one of the chief of which is the intensity of a buyers interest in a particular business.
Know Your Buyer
The seller, although good at “psyching out” customers and vendors, may not be as adept at sizing up potential buyers. Some buyers are professional window-shoppers; talking a good game but never really ready to play. There are also the buyers who would play ball — if they only knew where the action was! First locating and then qualifying buyers is a key function of business brokers. They will use computerized data bases, professional associations and other networks nationally and internationally — all to increase the chances of selling a business at top value.
In addition, the business broker will determine the right buyer for the right business, focusing on those prospects who are financially qualified as well as genuinely (or potentially) interested in the business for sale. As part of qualifying buyers, to take the “fear” out of the likely need for seller financing, the business broker will assess the ability of a particular buyer to run a business successfully. This invaluable work by the broker not only locates the best buyers, it also frees the seller to concentrate on his role in the selling process.
Prepare Your Business for Sale
In addition to the obvious need for the business to appear clean and cared-for, there are important steps the seller must take in advance of putting the business on the market. In most cases, a business will sell based on the numbers. Your business broker will help you create a clear financial picture — in timely fashion — and to prepare statements suitable for presentation to a prospective buyer. Remember that buyers may be willing to buy potential, but they don’t want to pay for it. In fact, sellers should be open to about all aspects of the business that might affect the sale; otherwise, once the real facts are revealed, the deal may self-destruct.
Business owners are accustomed to coping with paperwork, but few have had exposure to the specialized contracts and forms required both before and during the selling process. The business broker, an expert at transaction details, will help guard against delays, problems, and premature (or inappropriate) disclosure of information.
Maintain Normal Operations
Another vital activity for the seller is to keep on top of the day-to-day running of the business. When a business intermediary is on hand to focus on the marketing of the business, the seller can focus on keeping daily operations on-target. Sellers are “people people,” and may have visions of wooing buyers with their great presentation of the business. Even if this were to happen, these sellers fail to visualize the number of buyers they would have to “woo-and-win” if handling the sale on their own.
Confidentiality
An adjunct to maintaining the status quo is the important task of maintaining confidentiality. Until a purchase-and-sale agreement has been signed, most sellers do not want to disturb (or jeopardize) the normal interaction with customers and employees; nor do they want to alert the competition. A business broker helps by using nonspecific descriptions of the business, requiring signed confidentiality agreements, and performing a careful screening of all prospects.
To keep the sale of your business on firm ground, be sure that your “strengths” as an independent business owner aren’t actually weakening the sale. Using these key selling points along with the expertise of a business intermediary will keep the process going strong.
Copyright: Business Brokerage Press, Inc.
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Points to Ponder for Sellers
Who best understands my business?
When interviewing intermediaries to represent the sale of your firm, it is important that you discuss your decision process for selecting one. Without this discussion, an intermediary can’t respond to a prospective seller’s concerns.
Are there any potential buyers?
When dealing with intermediaries, it always helps to reveal any possible buyer, an individual or a company, that has shown an interest in the business for sale. Regardless of how far in the past the interest was expressed, all possible buyers should be contacted now that your company is available for acquisition. People who have inquired about your company are certainly top prospects.
Lack of communication?
It is critical that communication between the seller, or his or her designee, and the intermediary involved in the sale, be handled promptly. Calls should be taken by both sides. If either side is busy or out of the office, the call should be returned as quickly as possible.
Does the offering memorandum have cooperation from both sides?
This document must be as complete as possible, and some of the important sections require careful input from the seller. For example: an analysis of the competition; the company’s competitive advantages – and shortcomings; how the company can be grown and such issues as pending lawsuits and environmental, if any.
Where are the financials?
It may be easy for a seller to provide last year’s financials, but that’s just a beginning. Five years, plus current interim statements and at least one year’s projections are necessary. In addition, the current statement should be audited; although this usually presents a problem for smaller firms — better to do it now than later.
Are the attorneys deal-makers?
In most cases, transaction attorneys from reputable firms do an excellent job. However, occasionally, an attorney for one side or the other becomes a deal-breaker instead of a deal-maker. A sign of this is when an attorney attempts to take over the transaction at an early stage. Sellers, and buyers, have to take note of this and inform their attorney that they want the deal to work – or change to a counsel who is a “team player.”
Intermediaries are responsible for handling what is usually the biggest asset the owner has – and they are proud of what they do. Intermediaries realize that the sale of a business can create the financial security so important to a business owner. Even when a company is in trouble, the intermediary is committed to selling it, since by doing so, jobs will be saved – and the business salvaged.
