Seller Financing in Business Sales: A Complete Guide
, by Tyler Nix, Gungnir Group
Seller financing is a common tool in small business acquisitions. Here is how seller notes work, when they benefit the seller, and what terms to expect.
Frequently Asked Questions
- What interest rate is typical for a seller note?
- Seller notes typically carry 5-8% annual interest in 2026, depending on the deal size, buyer creditworthiness, and overall deal structure. The IRS imposes minimum interest rate rules (Applicable Federal Rates) on seller notes to prevent below-market loans.
- How long do seller notes typically run?
- Most seller notes in small business acquisitions have a term of 3-7 years. Shorter terms (3 years) are common in deals where the buyer has strong cash flow and wants to pay off the note quickly. Longer terms reduce the buyer's monthly payment burden.
- What happens if the buyer defaults on a seller note?
- If a buyer defaults, the seller can pursue collection through legal channels, but recovery depends on the business's remaining value and whether the note includes a personal guarantee from the buyer. This is why structuring seller notes with appropriate safeguards and keeping them at a reasonable percentage of the total deal is important.