Seller financing: funding your buyer to sell better
Introduction
Selling your business often involves negotiating financing with the buyer. Not all potential buyers have the full capital required, and Swiss banks generally demand a substantial personal contribution. This is where seller financing comes in: a mechanism where you, as the seller, finance part of the sale price.
This solution may seem counter-intuitive. Why lend money to someone who is buying your business? Yet seller financing offers concrete advantages: it broadens your pool of qualified buyers, facilitates obtaining bank financing, can improve the final sale price and sometimes optimises the taxation of the transaction.
Seller financing is not without risks. The buyer might not honour their repayments, or the business could deteriorate after the sale. This is why structuring the guarantees correctly and choosing the right buyer are essential. This guide explores seller financing from all angles: definition, advantages, structuring methods, essential guarantees and concrete practical cases to help you decide whether this option suits your situation.
📌 Summary (TL;DR)
Seller financing allows the seller to finance part of the sale price, thus facilitating the transaction and broadening the pool of potential buyers. Well structured with solid guarantees (pledge, protection clauses), it can optimise the sale price and taxation. Non-repayment risks exist but can be limited by rigorous buyer selection and an appropriate contractual framework.
📚 Table of contents
What is seller financing?
Seller financing (or vendor loan) is a financing mechanism where the seller agrees to finance part of the sale price. Instead of receiving the full amount in cash, they become a creditor of the buyer.
Concrete example: Sale at 500,000 CHF = 300,000 CHF paid in cash + 200,000 CHF in seller financing repaid over 5 years.
Unlike traditional bank financing, the seller grants the loan directly. The typical duration varies between 3 and 7 years. This solution often complements other financing options, as explained in our guide on acquiring a business with no down payment.
Why grant seller financing?
Many sellers hesitate to grant seller financing for fear of risk. Yet this solution offers concrete advantages that facilitate the sale and can even improve the transaction terms.
Here are the four main reasons to consider this option when selling your business.
Broaden the pool of potential buyers
The reality of the Swiss market is clear: few buyers have 100% of the capital needed for the purchase.
By offering seller financing, you make your business accessible to competent buyers without full capital. This considerably broadens your pool of potential buyers.
Result: you increase your chances of selling more quickly. A qualified buyer with 40% down payment can become a serious candidate thanks to this financing flexibility.
Facilitate obtaining bank financing
Banks perceive seller financing as a positive signal: you believe in the viability of your business and agree to share the risk.
This leverage effect is powerful. Seller financing of 20-30% can unlock bank financing that would cover the rest of the price.
The bank feels reassured by your financial commitment to the success of the handover. To maximise your chances, consult our guide on how to build a solid bank financing application.
Optimise the taxation of the sale
Spreading income over several years can offer tax advantages depending on your personal situation. Instead of receiving the full amount at once, you receive staggered payments.
Caution: this aspect is complex and depends on your canton and status. It absolutely requires advice from a tax expert.
Our network of partners includes specialised fiduciary firms that can support you in this analysis.
Obtain a better sale price
Financing flexibility can justify a slightly higher valuation. A buyer sometimes agrees to pay a bit more if you facilitate the financing.
This premium reflects the added value you bring by making the transaction possible. It's a balance to find between price and payment terms.
The buyer gains accessibility, you potentially gain in valuation. A well-structured win-win exchange.
How to structure secure seller financing?
Well-structured seller financing protects your interests whilst facilitating the transaction. The terms must be clear, balanced and legally sound.
Here are the essential elements to define to secure your vendor loan and minimise the risks of non-repayment.
Amount and duration: finding the right balance
The typical proportion is between 20% and 40% of the sale price in seller financing. The common duration varies from 3 to 5 years, rarely more than 7 years.
Repayments can be monthly or annual depending on the business's capacity.
Example: Sale at 600,000 CHF
- Seller financing: 180,000 CHF (30%)
- Duration: 5 years
- Repayment: 3,000 CHF/month + interest
The balance must take into account the business's cash flow to guarantee realistic repayments.
Interest rate: what remuneration?
The interest rate generally sits between 2% and 5% in Switzerland in the current context. It must reflect the risk you take as a creditor.
Compare with bank rates to have a reference point, but remember that your risk is different from that of a bank.
There is no absolute rule: the rate is negotiated between the parties based on the buyer's profile, the guarantees offered and market conditions.
Essential guarantees
Guarantees protect your claim in case of payment default. Here are the main ones to require:
- Pledge of shares: absolute priority, allows you to regain control if necessary
- Lien on assets: machinery, equipment, stock as relevant
- Personal guarantee: buyer's surety on their own assets
- Death/disability insurance: on the buyer's person
These guarantees complement other contractual protections such as the warranty of assets and liabilities.
Protective contractual clauses
The seller financing contract must integrate essential clauses for your protection:
- Acceleration clause: immediate enforceability in case of payment default
- Prohibition of resale: the buyer cannot sell without prior repayment
- Minimum financial ratios: obligation to maintain certain thresholds
- Right to information: regular access to accounts and the business's health
Have this contract drafted by a lawyer specialising in business transfers without fail.
Practical cases: seller financing in action
To concretely illustrate how seller financing works, here are two anonymised examples of successful transactions with different financing structures.
These cases show the mechanism's flexibility and its adaptation to different types of businesses.
Example 1: Industrial SME with 30% seller financing
Situation: Mechanical engineering business valued at 800,000 CHF
Financing structure:
- Buyer's personal contribution: 200,000 CHF (25%)
- Bank loan: 360,000 CHF (45%)
- Seller financing: 240,000 CHF (30%)
Terms: Repayment over 5 years at 3.5% interest, with pledge of shares and lien on main machinery.
Result: Transaction finalised, regular repayments for 2 years, seller satisfied with the follow-up.
Example 2: Retail business with combined earn-out
Situation: Specialised shop with debated valuation
Hybrid structure:
- Base price: 350,000 CHF (including 100,000 CHF in seller financing over 3 years)
- Earn-out: up to 50,000 CHF additional if turnover maintained for 2 years
This seller financing + earn-out clause combination allows sharing the risk on future performance. It reassures the buyer about the price paid and motivates the seller to ensure a successful transition.
The risks of seller financing and how to limit them
Let's be transparent: granting seller financing carries risks. Understanding and anticipating them is essential to make an informed decision.
Here are the main risks and concrete measures to minimise them.
Risk of non-repayment
The main risk: the buyer cannot honour their repayment instalments.
To limit this risk, carry out rigorous due diligence on the buyer: verify their professional experience, seriousness, quality of their takeover plan and personal financial solidity.
Assess their management capacity and track record. Contractual guarantees (pledge, lien) allow you to recover your due in case of default. Never neglect this verification step.
Risk of business deterioration
If the business declines under new management, the value of your guarantees decreases proportionally.
To limit this risk, provide for regular information clauses on the business's financial health. A right of oversight on quarterly accounts alerts you quickly in case of difficulty.
A transition period where you support the buyer for 3 to 6 months significantly reduces this risk. Your expertise facilitates operational continuity.
How to choose the right buyer for seller financing?
The choice of buyer is crucial when you grant seller financing. Prioritise these selection criteria:
- Sector experience: knowledge of your industry
- Management skills: ability to run the business
- Personal financial solidity: significant contribution and assets
- Motivation and vision: clear and realistic project
On the Leez platform, all buyers are verified. Take time for in-depth dialogue before any financial commitment.
Seller financing and the Leez platform: how does it work?
On Leez, you can mention in your listing that seller financing is possible. This mention attracts more qualified buyers seeking this flexibility.
The platform facilitates secure connection with NDA signing, then confidential exchanges. You then access our network of experts (lawyers, fiduciary firms) to structure the operation correctly.
Transparent pricing: 490 CHF to publish your sale listing, no commission on the final transaction. You keep control of your sales process.
Seller financing represents a strategic lever to facilitate the handover of your business. By agreeing to finance part of the sale price, you significantly broaden the number of potential buyers, facilitate obtaining bank credit and can even negotiate a higher sale price. This financial flexibility often transforms blocked transactions into concrete successes.
The key lies in rigorous structuring: define the right amount (generally 20 to 40% of the price), set an appropriate duration (3 to 7 years), provide solid guarantees and draft clear protection clauses. Careful assessment of your buyer remains your best protection against non-repayment risks.
Are you considering selling your business and wish to explore the seller financing option? First estimate your business's value for free, then publish your listing on Leez to access a qualified network of serious buyers. Our network of experts can also support you in the legal and financial structuring of your seller financing.
