In the lower middle market, most sellers must finance a portion of the sale of their business. Expect to provide anywhere from 5% to 15% seller financing. This helps close a funding gap and demonstrates that you believe in the business as a going operation.
Sellers who are confident in the buyer’s future success can look at seller financing as an investment and a tax-saving strategy. You are essentially loaning the buyer money that will be paid back, with interest. Because your debt will sit in the second position to senior debt, you can expect a higher return. You get a high fixed return on a loan that will be paid back as long as the business is solvent.