Finance – The Biggest Challenge in a Business for Sale by Owner

Nov 2, 2011

If you are an entrepreneur who is trying to sell an existing business, then you may already be familiar with the challenges of small business financing.  Selling your business “for sale by owner” may help you and the buyer save money on commissions, but what if the buyer cannot obtain financing?  Seller assisted financing is always a viable option, but it should never be done without a thorough investigation of the buyer’s creditworthiness.  In order to fully understand how you can sell your business on a “for sale by owner” directory, it’s important to learn how seller financing is usually secured.


  • The most common form of security for a business for sale by owner is a personal guarantee.  This doesn’t place a lien on any particular asset owned by the buyer, but it does mean that a buyer agrees to place their assets at risk in order to satisfy the loan.  Failure to make payments on the loan will give the seller a right to a formal foreclosure, which will give the seller access to all of the buyer’s assets.  In order to prevent a buyer from transferring assets into a spouse’s name, their spouse’s signature is also required on the guarantee.
  • Another way to finance a business for sale by owner is by offering specific collateral.  In some cases, such as when there is no bank financing involved, the seller may require that the buyer offer another form of security such as additional mortgages or security agreements on their real or personal property.  However, when a bank loan is part of the financing, the seller will be second in line as a secured creditor.
  • A stock pledge is another way for the buyer to finance a business for sale by owner.  This means the buyer forms a corporation that gives the seller the right to “vote the stock” in the event of a seller note default.  Faster and more efficient than foreclosure, this method provides sellers with the added security of knowing they can vote that payments are made, or that the management of the company be replaced.
  • Sometimes the buyer will add another layer of security to finance the sale, such as life and disability insurance policies that cover key members of the buyer’s new management team.  The buyer would normally be responsible for carrying these policies, which should amount to the total value of the seller’s note.

If you plan to finance the sale of your business and you want to do a “for sale by owner” transaction, be sure to research the appropriate methods for securing seller financing.  List your business as “for sale by owner” on the online directory at