As banks are being more stringent with their lending criteria, Sellers are being asked to carry a larger note back on the business. This is really a good thing for the Seller if they have a good, qualified buyer. Sellers not only get 7% interest on their note, which is hard to come by these days, and they do not have to pay taxes on the funds until they receive them. This spreads out their tax consequences over the three to five years of the loan.

If the buyer is using the Small Business Administration (SBA) to fund the majority of the loan, the SBA will require that the Seller receive interest only for the five-year period with a balloon after 60 months. The SBA is quite concerned about the Buyer’s cash flow and is making sure they do well in the business.