Although the economy seems to be improving slightly, tight credit markets mean the days when you could simply get a large check and be done with the sale of your small business are long gone.

Because of lending restrictions implemented after the 2008 recession by banks large and small, even the most enthusiastic buyer candidates may not be able to find the capital to fund a business acquisition. And as an owner, there is nothing more frustrating than having listed a business that garners plenty of attention but attracts no buyers who can meet your asking price.

In most of those situations, the business is actually a great candidate for sale. But because of challenges in the lending market, you as an owner are left with two options: either lower your asking price or work with the buyer to overcome their financial barriers.

Since most sellers don't want to leave money on the table by lowering their asking price, more and more are deciding to finance part of the sale themselves. In this case, sellers usually receive a portion of the purchase price up front and the rest (usually around 20-50 percent) will be paid by the buyer over time, with interest.

The trend has become so common, in fact, that a recent survey of national business brokers found that nearly 90 percent of brokers cited seller financing as "important" or "essential" to speeding up the business sale process. Only two percent found it unnecessary in today's market.

So how can you effectively execute seller financing without compromising your long term business sale goals? Here are a few tips:

1. Evaluate the Risk

A cash sale is an essentially risk-free transaction for the seller. Once the deal is done, you can comfortably walk away from the business with money in the bank. In a seller-financed transaction however, you continue to be tied to the business for several years after the sale is complete, until all purchase payments have been made. If the business succeeds, the new owner pays back the principal with interest and everyone wins. But if the new owner struggles and can't make the loan payments, you could suffer the loss of interest income and incur additional costs to collect the debt. In the worst case, the new owner can't make the payments and you get the business back through the loan default; something nobody wants to have happen.

The bottom line is that an owner-financed sale needs to be evaluated as a business investment. Like any other investment, it carries with it a certain amount of risk. If you are comfortable enough to invest in the new owner, then it can be beneficial to finance the sale yourself. However, if you aren't confident the buyer can make the business a success, you'll want to think twice before offering financing as an enticement to close the deal.

2. Advertise Your Willingness to Finance

Some sellers are hesitant to advertise a financing option because they aren't totally sold on the idea and view it solely as a last resort. The truth is that if you aren't comfortable with the idea of financing, you shouldn't consider it as an option at all. If you are, though, it is important to include the information as a selling point in your marketing efforts.

One of the most productive venues for advertising a seller-financed company is online. Seller financing has become so common that recently launched a feature that allows sellers and their brokers to clearly advertise their willingness to offer it. Buyers can also search exclusively for businesses that are at least partly seller-financed. These details now appear prominently alongside other essential information such as business description, location, asking price and cash flow. Remember that as a business seller, you are competing with other similar local businesses for a potential buyers' attention. If other businesses for sale in your area and industry are offering seller financing, and you are not, then you are going to be at a disadvantage in attracting qualified business buyers.

3. Leverage Interest and Increased Sales Prices 

If you as the seller do evaluate that the buyer is a low-risk investment, you stand to benefit greatly by financing a portion of the transaction. Too many sellers view financing as a desperate last attempt to unload the business when they should be viewing it as a resource for enhancing the benefits of the sale.

From the start, your willingness to hold paper increases the final selling price of the business. has found that partially-financed sales typically result in a price that is more than 15 percent higher than their cash sale, more than compensating the seller for the assumed risk and opportunity cost of financing. That means you can leverage your willingness to finance as a bargaining tool during negotiations.

In addition, financing the sale provides the opportunity to multiply the principal value of a business through future interest payments from the buyer. A financed sale can garner a higher rate of return than many other investment vehicles, as it often involves a five to seven year note at 8 to 10 percent interest as the norm.

4. Get Help From Professionals

On the surface, an owner-financed sale might seem mostly like a do-it-yourself transaction. Instead of relying on professional lenders for financing, you assume the responsibility for a percentage of the buyer's investment.

It's important not to get too caught up in the do-it-yourself mentality, though. A loan between a seller and a buyer is subject to limitless structures and variations, many of which require the input of professionals in order to secure airtight collateral, coherent loan terms and adequate insurance coverage. Before you agree to financing, obtain legal and financial advice from a professional you trust.

In addition, taking part of the purchase price for your small business in the form of a loan can have tax advantages that should be well understood and reviewed by a trusted tax professional.

5. Don't Waive the Down Payment

It's true that a seller-financed transaction can be a risky venture, but a healthy down payment can minimize your exposure by distributing significant risk to the buyer.

Generally speaking, it's in your best interest to finance no more than one third to two thirds of the sale price for your small business. If you decide to finance more than that, you need to have a legitimate reason for doing so. The key to remember is that as a seller's financing commitment increases, so does the risk.
