If you’ve been working at a family business for a number of years, there generally comes a point where you will be asked to take over. The seller wants to keep the business in the family and will often do everything possible to make this happen. This is when seller financed notes come in handy, and it’s a common transaction for families with small businesses.

It’s not uncommon for a seller’s note to be used in this type of small business transaction. One reason is seller financing is much more attractive and easily accessible in these types of acquisitions. It also tends to create a higher selling price than a transaction using all-cash. Most seller financed notes are interest loans that have gone through amortization over an agreed-upon time period after the business purchase has gone through. This means a single lump sum of cash has been divided into smaller installments. The nice thing is each repayment will pay off interest and principal, with more of the payment being applied towards interest at the beginning. More money is given towards the principal at the very end.

In certain cases, the buyer and seller will agree to defer or use only interest payments to lessen the pressure of paying the loan back. Some buyers will even take over payments, which is called an assumption. This is when the buyer takes over the mortgage payments. However, you need to be careful in this situation and really know the person taking over the loan. If the buyer would happen to default, it would show up on your credit report. This is probably only suggested in situations where you would still be able to offer guidance in the business. Seller financed notes can help a family business transition between owners without skipping a beat.

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