The buyer wants us to provide 25 percent seller financing to complete their debt package, but our priority is walking away clean. When does offering seller financing actually increase enterprise value versus just shifting risk back onto us?

Question

Tyler Smith · Accepted Answer

Seller financing increases enterprise value only when it functions as bridge leverage to attract a higher multiple, rather than a concession to prop up an undercapitalized buyer. In tight credit markets, institutional lenders will rarely fund more than three to four turns of EBITDA in senior debt. If your business is worth six times EBITDA, a 25 percent seller note bridges that gap, allowing you to secure a premium headline valuation that the buyer could not otherwise finance.

Carrying paper can also work in your favor if you negotiate commercial terms that reflect your position as a junior lender. That means demanding an interest rate between eight and twelve percent, a defined maturity between three and five years, and monthly or quarterly principal amortization rather than an interest-only balloon payment. It also signals total confidence in your numbers during diligence, which removes buyer hesitation and speeds up closing.

However, seller financing shifts uncompensated risk onto you when the buyer lacks operational capability or skin in the game. If the buyer is not putting in at least ten to twenty percent real cash equity beneath your note, you are taking equity risk for debt returns.

Before accepting a seller note, establish three absolute requirements:
- The buyer must execute a personal guarantee or provide verifiable balance sheet collateral outside of NewCo.
- You must receive quarterly financial reporting covenants with the right to inspect books and inspect operational scorecards.
- The note must carry an accelerated default clause: if the business is sold, merged, or defaults on senior debt covenants, your note immediately accelerates and becomes due in full.