Seller Financing When You Sell a Franchise
Many owners are surprised to learn how common seller financing is. In fact, there is a good chance that to sell your franchise, you will need to consider offering it. Understanding how seller financing works, and why buyers respond to it, can be the difference between a deal that stalls and one that closes.
What is seller financing?
Seller financing is when you, the seller, provide a loan that covers part of the purchase price. The rest is typically covered by a combination of the buyer’s down payment and other financing, often an SBA loan. In effect, you act as a bank for a portion of the sale.
Why it helps you sell
Most owners are not thrilled about becoming a lender, but seller financing offers real benefits. It sidesteps some of the friction of relying entirely on a bank, and sellers who offer it often achieve a higher final sale price. Most advisors encourage it for one big reason: it stimulates buyer interest. When you believe in your franchise enough to finance part of it, buyers take notice, and a wider, more motivated buyer pool is exactly what gets a deal done. It also pairs well with how you structure the overall deal.
Due diligence is still on you
If you offer seller financing, you take on the due diligence a bank would normally handle. A bank checks a buyer’s financials, credit, and ability to repay; without one, that responsibility is yours. Verify that the buyer is a low risk of default, and remember that in a franchise sale the buyer also has to satisfy the franchisor’s qualification process.
Safeguards to protect yourself
There are ways to limit your risk. Contracts often let the seller take the business back within a 30-to-60-day window if financing fails. For inventory-based businesses, a clause can require the new owner to maintain a set inventory level during the payment period. A good advisor helps you build in these protections.
Frequently asked questions
How much of the price is usually seller-financed?
It varies, but a seller note of roughly 10 to 20 percent of the price is common. It can bridge a valuation gap and make the deal financeable for the buyer.
Does seller financing get me a higher price?
Often, yes. It widens the buyer pool and signals confidence in the business, both of which tend to support a stronger price and terms.
What if the buyer defaults?
Safeguards like take-back rights and inventory requirements protect you, and proper due diligence up front lowers the risk. An advisor and attorney help you structure the note securely.
Thinking about how to finance your sale?
Seller financing can widen your buyer pool and lift your price. Talk to Franchise Sellers about selling your franchise, or call 800-499-4280.