There is a financing change happening in the small-business acquisition market that sellers need to understand.

And I think it is going to have a very real impact on how Main Street businesses get sold.

The new SBA SOP changes are putting more emphasis on documented equity, guaranties, collateral, valuation, repayment ability and lender protection. The SBA’s current SOP framework has increased scrutiny around acquisition structure, valuation, guaranties and collateral.

That doesn’t mean the SBA has suddenly said, “Every buyer needs to put 50% or 70% down.”

It hasn’t.

That’s an important distinction.

What I am saying is that the practical financing environment is moving toward more conservative structures, and that is likely to create more situations where the seller has to participate in the financing.

And that means seller financing is going to become increasingly important.

The Old Mentality: “The Bank Will Finance It”

For years, I have talked with buyers who think about a business acquisition this way:

“If the business is $1 million, I’ll put 10% or 20% down and the bank will finance the rest.”

That’s an oversimplification.

An SBA loan isn’t free money.

The lender has to underwrite the buyer.

The lender has to underwrite the business.

The lender has to establish that the business can repay the debt.

The transaction has to satisfy SBA requirements.

The valuation has to make sense.

The equity injection has to be properly structured.

And the lender has to be comfortable with the overall credit.

The SBA program provides a government guarantee to the lender; it doesn’t eliminate the lender’s underwriting responsibility. SBA guidance and industry lending commentary continue to emphasize equity injection, valuation, guaranties and collateral in acquisition transactions.

That distinction is becoming more important.

Seller Financing Is Not Going Away

In fact, I think we’re going to see more of it.

Why?

Because the market has a basic problem.

There are a lot of good businesses owned by people who want to retire.

There are buyers who want to buy them.

But the buyer doesn’t always have enough cash to write the check.

And the bank doesn’t always want to finance everything.

That’s where the seller comes in.

Seller financing essentially turns the seller into the bank for a portion of the transaction.

I’ve written about this before:

Seller Financing Can Be the Key to Selling Your Business explains why seller financing can bridge the gap between what a buyer can finance and what a seller wants to receive.

But there is something else sellers need to understand.

Seller financing isn’t simply, “I’ll take 20% down and let you pay me the other 80%.”

Not anymore.

At least, it shouldn’t be.

The Seller Is Becoming a Lender

Let’s put this into perspective.

Suppose you sell your business for $1 million.

A buyer says:

“I’ll give you $200,000 at closing and you finance $800,000.”

Would you do that?

Maybe.

But if you’re going to become the lender on $800,000, you should start thinking like a lender.

Banks don’t say:

“You seem like a nice person. Here’s $800,000.”

They want:

Equity
Credit
Collateral
Guarantees
Documentation
Cash flow
Security
Covenants
Default provisions
A repayment plan

Why should a seller be any different?

This Is Where “Skin in the Game” Matters

The buyer needs to have real money at risk.

That’s important.

If someone puts very little of their own capital into an acquisition, they have less economic pain if things go badly.

That’s one reason equity matters so much in lending.

The SBA’s acquisition framework still includes a 10% equity-injection standard in many transactions, with specific rules governing acceptable sources and seller financing that is being counted toward the injection.

But here’s where I think sellers need to understand the practical market, rather than simply looking at the minimum SBA number.

A deal can technically satisfy a lender’s minimum equity requirement and still be a transaction where the seller is taking a tremendous amount of risk.

That’s the difference between:

“Can this deal technically close?”

and

“Is this a good deal for the seller?”

Those aren’t necessarily the same question.

I Expect More Sellers to Want 50%, 70% or More at Closing

This is where I want to challenge the traditional way people talk about seller financing.

I’ve written previously that sellers should think very carefully before financing a large percentage of the purchase price. In my article on seller financing, I specifically discuss the risk of carrying too much paper and the importance of a meaningful down payment.

And my broader seller-financing guide discusses structures where the seller receives a substantial amount at closing and carries a smaller balance over several years.

Why?

Because the seller isn’t just selling a business anymore.

The seller is extending credit.

If you’re going to carry a note, you should be compensated for that risk.

That may mean:

A larger down payment
A shorter seller note
A higher interest rate where legally permitted
Stronger security
A personal guarantee
A UCC filing
Appropriate collateral
Default remedies
Restrictions on additional debt
Adequate insurance
Financial reporting requirements

The exact structure should be negotiated and reviewed by the parties’ attorneys and tax advisors.

A $1 Million Deal Doesn’t Have to Mean $200,000 Down and $800,000 Seller Financing

Let’s say the business is worth $1 million.

There are a lot of ways that transaction could be structured.

Structure A: Traditional Financing

$100,000 buyer equity

$900,000 SBA financing

That’s the classic model many buyers have in their heads.

But the transaction has to qualify, the buyer has to qualify, the business has to qualify, the lender has to approve the structure and the SBA requirements must be satisfied.

Structure B: Bank + Seller Financing

$100,000 buyer equity

$700,000 bank/SBA financing

$200,000 seller note

Now the seller has some money at closing and carries a smaller balance.

Structure C: More Seller Skin in the Game

$300,000–$500,000 paid at closing

Balance carried by seller

Now the seller has materially reduced the outstanding credit exposure.

Structure D: A Strategic Buyer

A buyer with significant liquidity may put substantially more cash into the deal.

The point isn’t that one structure is automatically right.

The point is:

The financing structure is part of the deal.

And I think sellers are going to have to become much more sophisticated about it.

But Here’s the Big Point About the New SBA Environment

The tighter SBA environment doesn’t necessarily mean the buyer suddenly needs 70% cash.

It means the transaction has to withstand more scrutiny.

The current SBA framework and related lending guidance emphasize areas such as:

1. Equity Injection

The lender needs to know where the buyer’s equity is coming from and whether it actually qualifies.

2. Personal Guarantees

Personal guarantees remain a critical component of SBA lending for owners meeting the applicable ownership threshold.

3. Collateral

The lender evaluates available collateral and security interests as part of the credit structure. SBA lending guidance also addresses collateral verification and security.

4. UCC Liens

A UCC filing can give a lender a perfected security interest in specified business assets.

For a seller-financed note, the seller may also negotiate appropriate security interests, subject to the senior lender’s rights and the transaction documents.

5. Repayment Ability

Ultimately, the business has to generate enough cash flow to support its obligations.

That may be the most important piece.

The Deal Needs Teeth

This is where I think sellers need to change their mindset.

If you’re carrying $200,000, $300,000 or $500,000 on a seller note, you don’t want a piece of paper that says:

“Buyer promises to pay seller.”

You want a properly documented secured obligation.

That may include, depending on the transaction:

UCC-1 Financing Statement

A UCC filing can establish the seller’s security interest in business assets, subject to any senior lender’s rights.

Personal Guarantee

The buyer may personally guarantee the seller note.

That puts additional skin in the game.

Security Agreement

The note should be supported by appropriate security documentation.

Defined Default

What constitutes default?

Missed payments?

Failure to maintain insurance?

Unauthorized sale of assets?

Failure to pay taxes?

Additional undisclosed debt?

These issues need to be addressed.

Acceleration

The documents can specify what happens after a default, including whether the remaining balance becomes immediately due.

Financial Reporting

A seller carrying a substantial note may want continuing financial information from the buyer.

Insurance

Appropriate insurance requirements can protect both parties.

Restrictions on Additional Debt

The seller may negotiate limitations on the buyer’s ability to pile additional debt onto the business.

These are legal matters and should be drafted by qualified transaction counsel.

But There Is a Catch: The SBA Lender Comes First

This is critical.

If there is an SBA loan on the transaction, the seller doesn’t get to simply create whatever lien or security arrangement they want.

The senior lender’s rights matter.

Seller financing may be subject to lender requirements, standby arrangements and subordination.

That’s why I tell sellers:

Don’t negotiate the financing structure in a vacuum.

The broker, lender, CPA and transactional attorney need to understand the structure.

The seller’s note has to fit within the overall capital stack.

The Seller Needs to Think Like a Banker

This is probably my biggest message to sellers.

If you’re going to finance part of your business sale, stop thinking like a seller.

Start thinking like a lender.

Ask:

Who is my borrower?

What is their credit?

What is their experience?

What is their liquidity?

What is their net worth?

What is their track record?

What happens if the business underperforms?

What happens if the buyer stops paying?

What collateral exists?

What other debt will the business have?

What is my position relative to the SBA lender?

Those questions aren’t being difficult.

They’re being prudent.

Seller Financing Can Actually Help a Seller Get a Better Price

Here’s the other side of this.

Seller financing isn’t necessarily a concession.

It can actually be a selling tool.

I’ve written about this extensively because financing can expand the pool of qualified buyers.

A buyer who can’t write a $1 million check may be able to purchase a $1 million business if the financing structure works.

That can mean:

More buyers
Better competition
Faster closing
Potential interest income
Potentially better price

My article Seller Financing…Get With the Program or Get Used to Not Selling in the Near Future made this argument several years ago: financing isn’t something sellers should automatically resist.

I think that argument is even more relevant now.

The Business Has to Be Bankable

There is another lesson here for sellers.

If you want maximum value, make your business financeable before you sell it.

Clean books matter.

Documented add-backs matter.

Stable earnings matter.

Transferable employees matter.

Low owner dependence matters.

Customer diversification matters.

A good lease matters.

All of those things reduce the lender’s perceived risk.

I’ve written about this in Clean Books for SBA Financing: Why Getting Your Business “SBA Pre-Qualified” Matters because a financially clean business is simply easier to finance and therefore easier to sell.

My $1.1 Million Bistro Deal Is a Good Example

I recently brokered the sale of a long-established Orlando bistro for $1.1 million.

It was financed with an SBA-backed buyer loan, and the seller received cash at closing.

Why did that transaction work?

The business had:

Long operating history
Consistent earnings
Strong local reputation
Experienced employees
Transferable operations
Solid books and records

Those things made the business much easier to underwrite.

That is the lesson.

Good businesses still get financed.

But the business has to make sense to the lender.

The Future May Be a Hybrid Financing Market

I think we’re going to see more transactions structured with multiple layers.

For example:

Buyer equity

SBA loan

Seller financing

Potentially other capital

That’s not a bad thing.

In fact, it can create a healthier transaction.

The buyer doesn’t have every dollar tied up in the purchase.

The seller gets meaningful cash at closing.

The seller retains some upside through interest.

The lender has its protections.

Everyone has skin in the game.

Sellers Need to Stop Thinking “Cash at Closing or Nothing”

I understand the desire.

You worked 20 or 30 years to build the company.

You want your check.

But here’s the reality:

The buyer pool is constrained by financing.

If you insist that every buyer bring 100% cash, you dramatically shrink your market.

And when you shrink your buyer pool, you can ultimately hurt your price.

The smarter question is:

How do I structure the transaction so that I maximize my cash at closing while making the remaining obligation as secure as reasonably possible?

That’s a much better question.

And Buyers Need to Understand the Other Side

Buyers shouldn’t view seller financing as “free money.”

It isn’t.

You’re asking someone who spent decades building a company to trust you with their money.

If you want seller financing, bring something to the table.

Bring:

Cash
Experience
A strong credit profile
A business plan
A transition plan
Skin in the game
Transparency

And be prepared for the seller to ask for protections.

That’s reasonable.

The Bottom Line

The new SBA environment isn’t killing business acquisitions.

But it is making structure more important.

And I believe that means seller financing is going to become an increasingly important part of Main Street transactions.

Not because sellers suddenly want to become banks.

They don’t.

It’s because the market needs another source of capital when buyers, banks and SBA financing don’t quite line up.

But here’s the important distinction:

Seller financing doesn’t mean 20% down and an unsecured promise for the rest.

A serious seller-financed transaction should be structured like a credit transaction.

That means thinking about:

Down payment.

Creditworthiness.

Cash flow.

Personal guarantees.

UCC filings.

Collateral.

Security agreements.

Default provisions.

Subordination.

Repayment terms.

And, most importantly, the buyer’s ability and willingness to pay.

The new SBA environment is making everyone in the transaction think more like a lender.

And frankly, that’s probably a good thing.

Because when you are selling a business, you don’t just need a buyer. You need a buyer who can actually close—and keep paying after the closing.

Thinking About Selling Your Business?

This is exactly why I believe exit planning should start before the business goes on the market.

If you’re a Florida business owner thinking about retirement or selling your company, I can help you understand:

What your business is worth
How financeable it is
What buyers will look for
Whether seller financing makes sense
How to prepare for SBA due diligence
How to structure the transaction
Where you may be leaving money on the table

I’ve been involved in hundreds of business transactions and have spent more than two decades helping Florida business owners navigate the sale of their companies.

Michael Shea, CBI, CEPA
Transworld Business Advisors
Tampa Bay / Central Florida

Your Florida Business Broker

Transworld Business Advisors

Important: SBA rules, lender requirements and seller-financing structures can vary by transaction and may change. The SBA does not require 50% or 70% buyer equity for every acquisition. The percentages discussed above describe potential market structures and risk-management approaches, not a universal SBA requirement. Buyers and sellers should consult their SBA lender, CPA and qualified transactional attorney before relying on any particular financing structure.