Seller financing is one of the most useful tools in small business deals, yet many buyers never ask for it. In a seller-financed purchase, the seller accepts part of the price over time instead of all cash at closing. That spreads the buyer's cost, gives the seller a higher total price, and aligns both sides on the business performing well after the sale. For deals under six figures, it is often the difference between closing and walking away.

The structure is simple. The buyer pays a deposit at closing, often 50 to 70 percent of the price, and the rest is paid in monthly instalments over one to three years, with interest. The seller holds a security interest in the business until the balance is paid, and the purchase agreement sets out what happens if a payment is missed. Some deals use a promissory note; larger ones may use an escrow arrangement where the seller can reclaim the assets if the buyer defaults. The key point is that the seller is acting as the bank, and the terms should be written down as carefully as a bank loan.

Sellers agree to financing for three reasons. First, it widens the pool of buyers, which usually means a higher price. Second, it spreads the seller's tax bill across several years instead of one large gain in a single year. Third, it signals confidence: a seller who will take payments over time believes the business will keep earning. Buyers should still be cautious, because a seller who insists on all cash is not necessarily hiding something, and a seller who offers financing is not automatically trustworthy.

The best time to ask is early, during the first serious conversation about price. Frame it as a way to close the gap between the seller's asking price and your budget, not as a sign you cannot afford the business. A typical opening is to offer the seller's asking price in exchange for 30 to 40 percent paid over 18 to 24 months. That gives the seller their price and gives you a manageable cash outlay. If the seller refuses, ask whether a shorter term or a larger deposit would change their mind.

Protect yourself with the terms. Push for the seller's payments to be tied to the business continuing to perform, and ask for a clause that reduces or pauses payments if revenue falls sharply for reasons outside your control. Make sure the agreement states clearly who owns the domain, customer list, and accounts during the repayment period, and what happens if you want to sell the business before the seller is fully paid. A lawyer should review the note and the security agreement, because a handshake on financing terms is worth nothing if the relationship breaks down.

Seller financing is not free money. Interest adds to the total cost, and a seller who retains a security interest can reclaim the business if you miss payments, even after you have invested time and money in growing it. Keep an emergency reserve so a bad month does not become a default. And remember that financing does not replace due diligence: a bad business bought on instalments is still a bad business, just one you pay for more slowly.

Interest rates on seller financing are usually higher than a bank loan but lower than the cost of giving up equity. A typical rate is 5 to 10 percent a year, which is fair for an unsecured loan on a small business, and the interest is often tax-deductible for the buyer as a business expense. Compare the total cost of the financing against the alternatives: a bank loan, if you can get one, a personal loan, or paying cash and keeping nothing in reserve. Sometimes the cheapest option is a mix: a larger deposit from your own funds plus a smaller seller-financed balance, which reduces both the interest and the risk of default.