When do buyers seek seller financing?
A buyer may seek seller financing if it cannot qualify for conventional bank financing due to a problematic credit history (or lack of one) or when assets being purchased are not suited to conventional lending. Real estate with potential or real environmental problems or a restaurant with collateral or equipment with dubious collateral value are examples where a bank may refuse to lend. A buyer may qualify for some conventional bank financing, but not the full amount of the transaction. A bank may lend only $700,000 on a $1 million sale. Seller financing might be used to defer payment on the shortfall. A buyer may request seller financing to obtain more favorable loan terms or to avoid providing guaranties or eliminate loan expenses. If the buyer is concerned about undisclosed claims, it may request seller financing to maintain some post-closing leverage with the seller. If an undisclosed claim against a business is asserted after closing, the buyer could set off or take a credit again
