The remainder is financed by the Seller, by a bank or through family resources. Sellers generally prefer to receive all cash at closing and some Buyers are able and willing to accommodate them. However, Buyers are usually trying to get the most bang for their buck and will want to leverage their down payment into the largest business they can buy. Usually a business cannot earn enough to both pay a salary to the owner and service such a high level of debt. In addition, the lender, whether it is the Seller or a bank, wants the Buyer to show his commitment to the business by having a vested financial interest in its success.
Seller financing is usually the cheapest and easiest to obtain.
It also tells the Buyer that the Seller has confidence in the business. There are no loan fees and the interest rate is usually lower than the bank rates, but the term of the loan is often shorter. Seller notes make up the majority of Buyer financing. Banks will loan money on businesses that show a strong earnings history on the tax returns. They require a lot of documentation and the payment of upfront fees.