The Truth About Seller Financing Nobody Wants to Hear

Every week I speak with prospective buyers who tell me they are ready to acquire a business.

Then I ask a simple question:

“How are you planning to pay for it?”

The answer is often some variation of:

“I’m hoping the seller will finance most of it.”

That’s usually where reality and expectations begin to collide.

The good news is that thousands of businesses change hands every year. The better news is that there are multiple ways to finance an acquisition. The challenge is understanding how lenders, sellers, and investors view risk—and positioning yourself accordingly.

Let’s walk through the most common options.

SBA Loans: The Most Common Path

For many Main Street and lower middle market acquisitions, SBA financing remains the gold standard.

The SBA doesn’t actually lend the money. Instead, it guarantees a portion of the loan, reducing the bank’s risk and making it easier for qualified buyers to obtain financing.

Typical SBA buyers can finance:

• The business acquisition
• Working capital
• Equipment
• Furniture, fixtures, and equipment
• Real estate (if included)

In many cases, buyers can acquire a business with approximately 10% down, although every deal is different.

The appeal is obvious:

• Long repayment terms
• Competitive interest rates
• Lower cash requirements than conventional financing

But don’t mistake “10% down” for “easy.”

Banks still want confidence that you can successfully operate the business and repay the loan.

What Lenders Are Really Looking For

Many buyers assume lenders focus primarily on the business.

In reality, lenders evaluate two investments:

1. The business
2. The buyer

A strong business can still be declined if the buyer appears unprepared.

Most lenders evaluate:

Industry Experience

Can you realistically run this company?

If you’re buying a manufacturing business after spending twenty years in manufacturing management, lenders become more comfortable.

If you’re leaving a teaching career to purchase an HVAC company with no relevant experience, expect tougher questions.

Management Ability

Lenders want evidence that you’ve led people, managed budgets, solved problems, and made decisions.

Ownership experience helps.

Executive experience helps.

A strong leadership background helps.

Credit History

Poor credit doesn’t automatically kill a deal, but it certainly makes financing more difficult.

Lenders want evidence that you’ve consistently managed financial obligations responsibly.

Liquidity

Many buyers focus entirely on the down payment.

Banks focus on what remains afterward.

A buyer who empties every account to fund a down payment creates significant risk.

Lenders generally want to see reserves available after closing.

Seller Financing: The Most Misunderstood Tool in M&A

Seller financing is often discussed as if it’s a substitute for a down payment.

It usually isn’t.

Many buyers approach sellers asking:

“Would you carry 80% or 90% of the purchase price?”

The problem is simple.

If a seller wanted to take all of the risk and wait years to get paid, they probably wouldn’t be selling.

Seller financing certainly happens. In fact, many successful transactions include it.

However, seller notes are typically used to:

• Bridge valuation gaps
• Demonstrate seller confidence
• Improve deal structure
• Supplement bank financing

They are rarely used because a buyer lacks capital.

Here’s the reality many buyers don’t understand:

The less cash a buyer brings to the table, the more risk everyone else must assume.

That generally means:

• Higher seller financing requirements
• More personal guarantees
• More scrutiny from lenders
• More restrictive deal terms

Ironically, buyers seeking substantial seller financing often need to contribute more cash—not less—to make the transaction attractive.

Investor Capital

Some buyers raise capital from partners, family offices, or private investors.

This approach can work exceptionally well when:

• The target business is large
• The buyer has acquisition experience
• Strong returns can be demonstrated
• The investor believes in the operator

Investors typically bet on people first and businesses second.

That means your credibility, experience, and track record matter tremendously.

Common Financing Mistakes Buyers Make

After years of working with buyers and sellers, several mistakes appear repeatedly.

Mistake #1: Looking for a Business Before Talking to a Lender

This is like house shopping before knowing your mortgage approval.

Know your buying power first.

Mistake #2: Assuming Seller Financing Will Solve Everything

Seller financing is a tool.

It is not a substitute for preparation, experience, liquidity, or lender confidence.

Mistake #3: Spending Every Dollar on the Down Payment

Businesses require working capital.

Unexpected expenses occur.

Cash reserves matter.

Mistake #4: Ignoring Industry Fit

A buyer may love a business.

A lender may not love the buyer’s qualifications to operate it.

Those are two very different conversations.

Mistake #5: Falling in Love Too Early

Many buyers spend months chasing a specific business before determining whether financing is realistic.

Start with financial capability.

Then identify opportunities that fit your budget and experience.

The Best Buyers Prepare Before They Search

The strongest buyers don’t start with businesses.

They start with preparation.

They understand their financial capacity.

They build relationships with lenders.

They document their experience.

They establish realistic expectations regarding seller financing.

And when the right opportunity appears, they’re ready to move.

Buying a business can be one of the fastest paths to wealth creation. But successful acquisitions are rarely won by the buyer with the biggest dreams.

They’re usually won by the buyer who shows up with a realistic plan, sufficient capital, and the credibility to convince lenders and sellers that the business will be in good hands after closing.

As the old saying goes, “The golden rule still applies in acquisitions: He who has the gold makes the rules.”

by Dave Godwin

I help entrepreneurs buy and sell remarkable businesses as well as help them plan their exits. If you would like to learn more about how much your company is worth and/or how to maximize the value of your business at exit, Click Here to schedule an introductory call with me or feel free to email me at dave.godwin@cbiteam.com. I will help you discover how to find out if it’s the right time to exit and help you ask a higher selling price for your business. All information is managed in the strictest of confidentiality.