How Small Businesses Can Buy a Company Through Seller Financing

Seller financing isn’t just a tool for homebuyers. It can be a game-changer for small businesses in the UK looking to grow by acquisition. With traditional lending options becoming harder to access and interest rates remaining high, many entrepreneurs are exploring alternative ways to take over an existing business.

One method that’s gaining traction is buying a company through seller financing — using a business note as the underlying structure.

What Is Seller Financing?

In seller financing, the current owner of the business agrees to finance a portion of the purchase price. Instead of a bank loan, the buyer makes monthly payments — including principal and interest — directly to the seller. This agreement is typically secured through a promissory note, often called a business note.

The terms are negotiated between the buyer and seller, making it a more flexible form of financing. This is especially useful when the buyer doesn’t have access to full funding through traditional banks, or when a seller wants to exit quickly and still earn interest on their capital.

Why Seller Financing Makes Sense for UK SMEs

For UK-based small businesses, seller financing comes with several advantages:

Easier access to acquisitions: Buyers without deep capital reserves can still take over profitable businesses.
Simplified negotiations: Buyers and sellers can agree on terms that suit both parties — including interest rate, repayment term, and collateral.
Retention of business continuity: The seller often remains involved during a transition period, helping maintain operations and customer relationships.

While more common in the US, seller financing is increasingly being used in UK business transfers — particularly with owner-managed businesses or trades.

How a Business Note Works

A business note outlines the agreement for repayment. It typically includes:

Total amount financed
Interest rate
Repayment schedule
Clauses for default or prepayment

This legal document becomes an asset for the seller — one they can later sell the business note on the secondary market to a note buyer, often at a discount.

For the buyer, it’s a commitment to pay. For the seller, it’s a continuing income stream — or a lump sum if sold.

Structuring a Deal That Works

Let’s say a plumbing business is being sold for £200,000. The buyer puts down £60,000 and agrees to a seller-financed note for the remaining £140,000 at 7% interest over five years.

That would result in monthly payments of approximately £2765. Over time, the seller collects both principal and interest, and the buyer acquires full ownership without involving a bank. If the seller wants liquidity, they can sell the note to a third party.

Key Considerations for Buyers

Verify the company’s cash flow: Can it support the repayment schedule?
Hire a solicitor: Ensure the note and business transfer agreements are legally sound.
Negotiate early payoff terms: In case your business grows fast, having the ability to clear the debt early gives flexibility.
Know your exit options: If you plan to sell the acquired business or the note, build that into your structure.

Benefits for Sellers

Increased pool of buyers: You make your business accessible to more potential buyers.
Ongoing income: The note generates predictable monthly payments.
Potential for resale: A seller can later sell the note to a note buyer and get a lump sum.

Realistic Use in the UK Market

In the UK, seller financing isn’t institutionalised like in the US, but it’s commonly used in smaller acquisitions, especially where buyers are acquiring:

Retail shops
Trades and services
Online businesses

Accountants and business brokers in the UK are becoming more familiar with structuring these types of deals, particularly for succession planning in family-run companies or sole traders looking to retire.

Long-Term Flexibility

Business notes can also evolve. After a few years of stable payments, a buyer might refinance through traditional lenders to pay off the seller early. Or, the seller might want to sell the note for liquidity. This built-in flexibility makes seller financing a dynamic strategy, not a static arrangement.

Wrapping Up

Seller financing allows SMEs to bypass the typical funding barriers and take control of growth. A well-structured business note benefits both buyer and seller, ensuring flexibility and mutual value. For business owners looking to exit — and for buyers ready to step in — it’s a practical, strategic option worth serious consideration.

And for small businesses, acquiring another business through seller financing could be the smartest route to growth in today’s market.