What Is Seller Financing? Buy The Business Now, Pay Later
Reading Time: 8 minutes 
So, you have found the perfect website or online business to buy, but there’s one problem.
It’s a 5 to 6-figure asking price or more, and you don’t have the full cash in hand?
No problem! By structuring a seller financing deal, you may be able to acquire the business now and pay for it via a payment plan over time.
This is called seller financing.
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I’ll explain everything you need to know about seller financing in this article so that you can structure an acquisition without paying for it all upfront.
What Is Seller Financing? Website Acquisition Payment Plan Guide
Now you might be wondering, “What is seller financing? And how can it help buy my dream website without breaking the bank?
Let’s say you could convince the seller to give you a loan, to complete the purchase of their business.
Sounds unreal, right? It’s actually a common type of deal structure and it has many benefits to you the buyer as well as sellers.
Before we jump in, make sure you have your free guide to buying and selling online businesses – it’s available for free inside the HerPaperRoute Toolkit which you can access here!
Listen to the audio version of this Guide: HerPaperRoute Podcast
What is Seller Financing, and Why Should You Care?
Seller financing (aka owner financing) is when a seller provides a loan directly to the buyer instead of the buyer going through traditional lenders like banks.
Think cutting out the middleman!
It’s like the seller swooping in and saying, “Hey, you pay me a part of the purchase price, and I’ll cover the rest for now.”
Essentially, the seller extends credit to you (the buyer), which you repay over time, typically with interest.
You become the borrower, the seller becomes the “lender,” and the property is collateral for the loan.
It’s a great arrangement where both parties can strut away with a win.
When structuring a seller financing deal, you will pay a downpayment upfront (typically 20-50% of the sale price) and then pay the rest via a monthly or quarterly payment plan, directly to the seller. In most cases, you can expect to pay 2-3% interest on the balance. However, each deal is different and will be worked out between the buyer, seller and broker.
Related: See this week’s established website for sale listings.
The Benefits of Seller Financing
Now… why should you care? Well, as a buyer, seller financing:
- Helps close deals faster
- This could mean lower interest rates than dealing with a bank
- It may enable you to purchase a business with less cash upfront.
- More accessible financing
- Flexible terms for repayment
- You can pay back the loan using the funds the business earns each month
In short, seller financing makes it easier to become a website owner without having the entire sum needed upfront. So if your wallet’s low on funds or you don’t want to pay out a lump sum for a site immediately, seller financing could be an ideal solution.
And the benefit of seller financing to the seller:
- It opens the door to more potential buyers
- Ongoing income source for sellers
- Potentially higher sales price
- Quicker closing process
- Can be a tax benefit to receive lower payments over a few years, rather than a big lump sum in one year
Let’s break it down.
Benefits For Sellers
As a website seller, you don’t want your site sitting on the market forever. Offering seller financing can attract more buyers.
Here are some MAJOR benefits of offering seller financing:
Attract more buyers:
Not everyone has access to traditional financing. By offering seller financing, you’re making it easier on the buyer.
This is especially true if your buyer lives in a different country than you. In that case, your out-of-country business may not be eligible for a traditional loan for them.
By offering seller financing yourself, you make it possible for more buyers to work with you.
What this does is it opens the doors for many potential buyers who may have been interested in buying your site – but not for full cash upfront.
And just like that, you’ve significantly widened your pool of potential buyers.
More bites for your bait.
Tax Benefit
If you were to receive the payment in one lump sum, it may put you in a higher tax bracket, making your income tax owing to the government substantially higher.
Whereas if you receive the payment in smaller increments, over the course of couple years, you may be able to keep your taxes lower.
Higher selling price: Show Me the Money!
Buyers may agree to a higher price in exchange for favorable financing terms.
Who doesn’t love the idea of a little extra cash?
So when you offer seller financing, buyers are more willing to agree to a higher price.
Why?
Your buyer gets to spread their payments over time, making the whole process super convenient and flexible for them.
Meanwhile, you – the savvy seller – enjoy a much higher return on your website.
Seller financing makes deals close WAY quicker than traditional financing, which, let’s be honest, is a total snail race.
With all that paperwork, bank jargon, third-party emails and a never-ending maze of background checks that traditional loans deal with, it feels like your precious website sits around gathering virtual dust like nobody’s business.
But with seller financing? You get to take charge!
Forget waiting around for approval from traditional lenders.
You set the timeline, making the whole process uber-efficient and allowing you to move on to your next big thing.
You’ll also be earning extra income thanks to the interest on the loan.
Do you know how I mentioned you’d be playin’ the part of a bank?
Well, just like with banks, you’d also be earning interest on those loans.
So, not only would you be receiving the agreed-upon purchase price through seller financing, but you’d also be making some extra dough with interest on the loan.
Imagine a continuous cash flow coming your way even after the website isn’t yours anymore.
Talk about an extended payday!
Benefits For Buyers: Why Website Buyers Can’t Get Enough of Seller Financing
Now, if you’re a website buyer, you’re definitely eyeing the BEST deal.
Seller financing has many perks up its sleeve, and here are some of them:
Simple Qualification Process
Wave goodbye to trying to impress those big, intimidating banks or fretting about not having a credit score.
With seller financing, sellers take on the lender role and are usually more understanding about qualifications!
That’s right – no need for a fancy-schmancy FICO score or piles of paperwork. Say hello to stress-free financing!
Better Interest Rates
Did you know seller financing often offers lower interest rates than conventional lenders?
Banks love their money, after all, and they want to make sure they get it back with interest!
So, when sellers step into the lender’s shoes, they’re actually sacrificing some profits for the benefits of quickly closing a deal and fetching a higher purchase price.
You know what that means, right?
More savings for you if you’re paying off your debt over time.
Everyone LOVES saving money; after all
In the long run, this means less cash has to leave your wallet, giving you a more funds to play with… or invest!
This means you could get more flexible terms depending on the seller.
You can negotiate a better repayment plan or even payment holidays if needed.
Flexibility is vital for any loan, so this is definitely in your favor as a buyer.
Navigating the Seller Financing Process: Tips for Website Buyers and Sellers
You’re probably thinking, “OKAY, this all sounds great, but what do I need to know to make it work?”
Here’s a guide to make navigating this process as smooth as butter.
1. Start with clear terms:
Once you have found a website to buy, reach out to the seller’s broker and make your offer.
The first step to successful seller financing is setting clear terms. Be open, be honest, and make an offer that would be attractive to the seller.
2. Establish a solid payment plan:
Your payment plan needs to be set in stone; ensure everyone’s on board with the payment schedule and how interest is calculated.
Seriously no surprises.
3. Get everything in writing
Once agreed upon, the broker will put the seller financing terms into the sale agreement.
You definitely want to avoid any “he said, she said” situations down the line.
So, get everything in writing. Ensure all the agreed terms are in a formal, legal document you can refer to.
4. Consult with legal and financial professionals:
Consider getting a lawyer to assist you in reading the sale agreement. This way, everyone’s on the same page from the get-go.
They’ll ensure everything is legit and protect your interests, helping you avoid potential pitfalls and protecting your interests throughout the process.
Things to Consider Before Seller Financing
Are you feeling hyped about seller financing yet?
But wait…don’t take the leap just yet!
Before diving head-first, there are some things to consider.
Here are some key factors when it comes to seller financing:
- Buyer’s trustworthiness: Can you trust this buyer to have your back when it comes to receiving credit?
- Seller’s financial stability: Do the sellers need cash ASAP, or can they afford to finance the loan?
- Interest rate: Are the rates offered competitive compared to traditional lenders? Think long and hard; this will make or break whether seller financing benefits you!
- Repayment deets: Are both parties comfy with the terms, time frame, and interest rates? Make sure to discuss this thoroughly!
How to Set Up Seller Financing
Alrighty, so now that you’ve got all of that sorted, let’s move on to the nitty-gritty; how to actually set up seller financing.
Here’s your checklist!
- Due diligence: As a buyer or seller, you must seriously analyze those risks! (Check out the due diligence checklist inside our creator toolkit – it’s free!)
- Negotiation time: Go into discussions about payment, interest rates, transitional support, and anything between the sun and your soon-to-be ownership
- Contract: The broker will draft a comprehensive contract that outlines all the responsibilities for both buyer and seller.
- Close that deal: High-five each other, shake hands, and transfer the business ownership.
Is Seller Financing Right for You?
Now, you may be thinking…Is seller financing the right move for me?
Great question!
As good as seller financing may sound, consider whether it fits your needs and desires.
After all, you want to make a smart and informed decision.
In summary, if you want an easy-to-navigate solution that brings all the awesomeness of a traditional loan without the mumbo-jumbo, seller financing MIGHT just be perfect for you.
Consider all the factors, check and double-check, and you’re good to go.
Figuring out that seller financing is ideal for your requirements is already half the job done.
It’s about finding the perfect seller and securing your best deal.
Remember, research is your best bet before sealing the deal.
