Seller Financing Calculator
Structure a seller note on a business purchase: monthly payment, balloon amount, amortization — and whether the business’s own earnings can service the debt.
Seller note of $320,000 at 8% over 6 years.
| Year | Principal | Interest | Balance |
|---|---|---|---|
| 1 | $43,292 | $24,035 | $276,708 |
| 2 | $46,885 | $20,442 | $229,822 |
| 3 | $50,777 | $16,551 | $179,046 |
| 4 | $54,991 | $12,336 | $124,054 |
| 5 | $59,556 | $7,772 | $64,499 |
| 6 | $64,499 | $2,829 | $0 |
Don’t know the SDE? Calculate it from the P&L · Checking the price itself? Business valuation calculator
Seller financing in one paragraph
Instead of a bank, the seller lends you part of the purchase price. You put cash down at closing, sign a promissory note for the balance, and pay the seller monthly with interest — usually 5-7 years, often with a balloon due earlier. It shows up in most small-business deals because banks dislike lending against goodwill, and a seller who finances sells faster and at a stronger price. For the buyer, the note’s terms decide whether the deal feeds you or bleeds you — which is exactly what this calculator tests.
What typical seller-note terms look like
| Term | Typical range | What to know |
|---|---|---|
| Down payment | 10-30% of purchase price | Sellers want skin in the game; SBA deals often pair a 5-10% seller note with a bank loan. |
| Interest rate | 6-10% | Usually above bank rates — the seller is taking real risk. Below 6% is a negotiating win. |
| Term | 5-7 years | Shorter than bank loans. Longer amortization with a balloon is common. |
| Balloon | Due in 3-5 years | Payments calculated on a long amortization, remaining balance due early — plan the refinance from day one. |
| Share of deal financed | 30-60% seller-carried | Full 90% seller financing exists but usually signals a business banks refused to touch. |
| Security | Personal guarantee + business lien | Expect to sign personally. Negotiate the guarantee to burn off as the note is paid. |
The 1.25× rule: can the business pay its own note?
A seller note is only as good as the earnings that service it. The standard check is debt-service coverage: monthly SDE divided by the monthly payment. Lenders want 1.25× or better — the business earns the payment plus a 25% cushion. Between 1.0× and 1.25× you’re one slow quarter from missing payments, and below 1.0× the business cannot pay for itself at those terms at all. Every input in this calculator — price, down payment, rate, term — is a lever to pull that ratio back above the line before you sign.
One thing no coverage ratio catches: whether the SDE itself is real, and whether the market around the business is holding up. Verify both before the note is your problem.
Frequently asked questions
How does seller financing work when buying a business?
The seller acts as the bank: you pay a down payment at closing and sign a promissory note for the rest, paying the seller monthly with interest over a set term. It's used in roughly 60-80% of small-business sales in some form, because banks are cautious about lending on goodwill-heavy businesses and sellers who finance can sell faster and at a better price.
What is a typical seller financing interest rate?
Most seller notes run 6-10% annual interest. The rate reflects risk the seller is taking on you and the business — expect the low end when you bring a large down payment and strong credit, the high end when the seller carries most of the deal. Rates far below market can also have tax implications for the seller (IRS imputed interest rules), so "0% financing" offers rarely survive contact with an accountant.
What is a balloon payment in a seller note?
The note's payments are calculated as if you'd repay over a long period (say 10 years), but the whole remaining balance comes due after 3-5 years as one 'balloon' payment. This keeps monthly payments low while getting the seller fully paid out sooner. The buyer's plan is usually to refinance the balloon with a bank once they have 2-3 years of ownership history — if you can't refinance, you must pay it in cash or default, so never sign a balloon without a realistic exit plan.
Can the business itself pay for the seller note?
That's the test that matters. Divide the business's monthly SDE by the monthly payment: lenders want at least 1.25x coverage — meaning earnings cover the note with a 25% cushion left for your salary, taxes, and surprises. Below 1.0x the deal loses money from day one at those terms; the fix is a lower price, longer term, lower rate, or bigger down payment. This calculator runs that check when you enter the SDE.
Why would a seller agree to finance the sale?
Three reasons: the business sells faster (the buyer pool is many times larger), it often sells for more (buyers pay a premium for terms), and the seller can spread capital-gains tax over the years payments arrive instead of taking the hit at once. A seller's willingness to carry a note is also a confidence signal — someone who truly believes the business will keep earning has little fear of being paid from its cash flow.
What happens if the buyer defaults on seller financing?
The note is secured — typically by a lien on the business assets and a personal guarantee. On default the seller can take the business back (and keep the payments made), seize assets, and pursue the buyer personally. That personal guarantee is standard, but negotiate its terms: a burn-off clause that reduces the guarantee as the note is paid down is a reasonable ask.
Related free tools
- Business Valuation Calculator — check whether the purchase price itself sits in the industry band.
- SDE Calculator — build the SDE number from net profit and add-backs.
- SBA Loan Calculator — compare the seller note against SBA 7(a) financing.
NEXT STEP
The note math checks the terms. It can’t tell you if demand for this business is rising or dying in its market. A Due Diligence Scan reads that before you sign anything.
Get a Due Diligence Scan →Idea-stage instead? Get a free signal scan