---
title: "What Is Seller Financing? Private Equity Glossary"
description: "Seller financing is when the seller lends the buyer part of the purchase price, and the buyer pays it back over time with interest."
url: https://capstreet.multisites.ai/glossary/seller-financing
publisher: Capstreet
phone: +1-713-332-2700
contact: https://capstreet.multisites.ai/contact
---

Deal structure

# Seller Financing

Seller financing is when the seller lends the buyer part of the purchase price, and the buyer pays it back over time with interest.

In seller financing, you act as a lender for part of the sale. The buyer pays less cash at closing and signs a note to pay you the rest over time, usually with interest.

For example, a buyer pays $27 million at closing and gives the seller a $3 million note, repaid over three years. The seller receives steady payments but carries the risk that the company may not pay.

It matters because it can bridge a gap in price or help a buyer who has limited cash. The risks for you are late payment, a lower rank than the bank's loan and a long wait for your money.

If you accept a note, review the interest rate, security, payment dates and what happens in a default. Ask your lawyer to check it. Compare it with an [earnout](https://capstreet.multisites.ai/glossary/earnout), which depends on results instead of time. Read about deal terms in the [letter of intent guide](https://capstreet.multisites.ai/guides/letter-of-intent). Related: [escrow](https://capstreet.multisites.ai/glossary/escrow).

[Read nextThe letter of intent: what it says, what binds you and what to negotiate](https://capstreet.multisites.ai/guides/letter-of-intent)

## Related terms

-   [Earnout](https://capstreet.multisites.ai/glossary/earnout)
-   [Escrow](https://capstreet.multisites.ai/glossary/escrow)
-   [Management Buyout](https://capstreet.multisites.ai/glossary/management-buyout)

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