What is Seller Financing?
Seller financing is similar, in many regards, to bank financing. The potential buyer might not qualify for the entire financing through a normal bank loan or even for a portion of it. In those cases, if the seller believes that the buyer is still creditworthy, he or she may allow the buyer to make payments, rather than requiring the buyer to pay the price up front.
The disadvantage to the seller is a higher than normal chance of default on the loan. On the other hand, seller financing usually allows for a faster transfer. It also allows the seller, now financier, to require monthly reports of inventory levels, revenues, and profit/loss statements to evaluate the performance of the buyer.
Finally, the buyer has the chance to become profitable without a large initial expenditure and the seller can commonly defer some of the tax burden of the transaction, otherwise incurred in a traditional resale.
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