If you’re a buyer, it’s a good idea to figure out the ballpark of how much you can afford. This will be a combination of how much you’ll pay from your own savings, bank loans, and other financing methods along with how much cash the business can contribute to pay off the loan. There are a number of ways a buyer can pay for a business. The buyer can pay with cash, use savings, ask for help from family and friends, or get a bank loan.
Another option is owner financing where the buyer makes a down payment and signs a promissory note to pay the remaining amount. The seller secures the loan with cosigners on the note, a personal guarantee, first or second mortgages on the buyer’s home or other real property, a security agreement on personal assets, the right to take back the lease, etc. What sort of security the seller asks for all depends on the buyer’s financial strength. If the buyer defaults on the loan, the seller seizes and sells the secured assets to pay off the loan.