When most people think about buying or selling a business, they imagine a giant wire transfer and a clean break. One side gets the keys. The other gets the cash. But, real-world deals — especially in the small to mid-sized business space — rarely play out so cleanly. Financing gaps, trust issues, and valuation disputes can all throw a wrench into the smoothest negotiations.
Enter: seller paper.
It’s a bit of a quiet powerhouse in deal structuring — often the glue that holds everything together when banks hesitate and buyers can’t cover the full tab. It’s not a trick. It’s not a loophole. It’s just good old-fashioned deal-making. Let’s unpack it.
What Is Seller Paper, Exactly?
In plain speak, seller paper is a general term for financing that the seller of a business offers to the buyer — usually in the form of a loan. It’s also sometimes called a seller note, promissory note, or even carryback financing.
Instead of getting the full price in cash at closing, the seller accepts part of the payment over time. That balance gets documented in an agreement — complete with interest, a repayment schedule, and often some level of protection in case things go south.
It’s surprisingly common, especially in deals under $10 million. Why? Because traditional lending sources (like banks or SBA loans) don’t always cover 100% of the price — and few buyers are sitting on enough liquid capital to make up the difference.
A Closer Look: What’s in a Seller Note?
Now, let’s zoom in on the core piece of this arrangement — the seller note. It’s not just a handshake and a promise.
Think of it like a formal IOU with teeth. A seller note spells out exactly how much the buyer owes, the interest rate (typically 6%–10%), the monthly or quarterly repayment structure, and what happens if the buyer defaults.
Some are secured by the business’s assets. Others are subordinated (meaning the bank gets paid first if things go sideways). In most cases, they’re enforceable contracts that provide a legal mechanism for repayment.
What makes them interesting isn’t just the legal structure — it’s the intent behind them. When a seller is willing to finance part of the deal, it signals confidence in the business and the buyer’s ability to run it.
Why Do Sellers Offer Financing at All?
It’s easy to wonder: why not just hold out for an all-cash buyer?
The truth is, holding out might mean holding on forever. And that’s not always feasible for business owners ready to move on. Offering seller financing widens the buyer pool. It helps bridge valuation gaps. And it gets deals across the finish line — sometimes faster and at higher prices.
Plus, sellers often earn interest on the note. That’s passive income. For some, it’s a tax-savvy way to smooth out capital gains over multiple years. For others, it’s a way to support the next generation while still pulling some cash out of the business they built.
So while it does involve some risk, the upside can be meaningful.
Buyers Like It More Than You Think
From a buyer’s perspective, seller financing is often a huge win. Not only does it reduce the amount of upfront capital required, but it can make lenders more comfortable with the deal.
In fact, many banks view a sellers note as a form of seller commitment — a sign that the seller isn’t just cashing out and walking away. That sense of alignment matters. It reassures everyone involved that the seller believes in the continued success of the business.
And practically speaking, seller notes can be the difference between getting a deal done and watching it fall apart at the eleventh hour.
How Is This Different From Traditional Lending?
Good question.
Bank loans are generally rigid. They involve underwriting, collateral, credit checks, and lots of red tape. SBA loans come with guarantees but also with strict limitations and compliance hoops.
Seller paper? It’s flexible. Negotiable. Customizable. The terms can reflect the relationship, the deal size, the industry, and the unique quirks of the business.
That doesn’t mean it’s casual — just that it’s adaptive. Which is a big reason why it thrives in the small-business M&A world.
The Risks? Yes, There Are a Few
Let’s be real: seller financing isn’t without its pitfalls.
Sellers take on credit risk — the chance that the buyer won’t make payments. That’s why many include personal guarantees, interest charges, and other protections in the note.
Buyers, on the other hand, take on a longer-term relationship with the previous owner. That can be a benefit during transition, but it also means one more person watching the books.
And let’s not forget the emotional layer: if either party has unrealistic expectations or fails to document things clearly, misunderstandings can get messy.
When to Consider Seller Paper
So, when does it make sense to use seller paper?
- When buyers don’t qualify for full financing
- When sellers want to attract more offers
- When deal size exceeds traditional lending caps
- When trust and alignment exist between both parties
- When timing matters and cash buyers aren’t waiting in line
And sometimes… when the buyer just wants a better deal and the seller’s willing to play ball.
It’s Not Always Called the Same Thing
Here’s a quick heads-up: depending on who you’re talking to — brokers, lawyers, bankers, or buyers — you might hear different terminology. Seller financing. Carryback. Promissory note. Deferred consideration.
But at its core, it’s all the same thing: an agreement where part of the sale price is paid over time, not all at once.
Understanding the lingo helps you navigate conversations and spot opportunities that less-informed parties might miss.
Final Thoughts: It’s Quietly Powerful
There’s a reason experienced business buyers and sellers don’t flinch when they hear “seller paper.” They know it’s not a weakness. It’s a tool.