Seller financing

Instead of paying $400,000 up front, you might pay $100,000 now and the rest over five years from the business you just bought. It is how a large share of small acquisitions actually get done.

It also aligns incentives: a seller who is being paid out of future profits has a strong reason for the business to keep working after they leave, and their willingness to accept it is a signal about the quality of what they are selling.

Put numbers on it. A $400,000 business, $100,000 down, $300,000 over five years at 6% is about $5,800 a month. If the business earns $124,000 of SDE, that is $10,300 coming in every month: the note is paid out of the business and roughly $4,500 a month is left for you. Lenders call the relationship between those two figures debt service coverage, and they want it comfortably above one for the same reason you should.

The terms matter more than the headline price. A longer term, a lower rate, or six months before the first payment are each worth more than a discount and are easier to get. Two things to watch: whether you are personally guaranteeing the note, and what happens if the business declines. And a seller who refuses any financing at all, on any terms, is telling you what they expect to happen once they leave.