The buyer is asking me to carry a 30% seller note, but I want to wash my hands of the business. How do I structure seller financing without staying trapped in my own company?

Question

Tyler Smith · Accepted Answer

When a buyer demands seller financing, they are not just looking for a loan; they are trying to force you to keep skin in the game because they fear the business will break once you step away. If you want a clean break, you must de-risk the deal structure.

First, negotiate a strict subordination agreement. Your note will be secondary to the senior bank lender, but you must demand covenants that protect you. Require monthly or quarterly financial reporting and a debt-service coverage ratio (DSCR) covenant. If the buyer drops below a 1.2x DSCR, it should trigger an immediate default, giving you the right to step back in or accelerate the payments.

Second, secure the note with a personal guarantee from the buyer and a pledge of the company stock. If they default, you claw back ownership of a business you already know how to run, plus you keep their down payment.

Third, and most importantly, use the EOS® framework to prove you are already obsolete. Show them your Accountability Chart. When the buyer sees that a highly capable leadership team GWC™ (Gets It, Wants It, Has the Capacity to do it) their roles - and that you have successfully transitioned your daily duties - their perceived risk plummets. This gives you the leverage to reduce the seller note from 30% to a more palatable 10% to 15%, or negotiate a shorter amortization schedule with a balloon payment at month 24. Do not act as a cheap bank without securing complete operational freedom.