Owner Financing Commercial Real Estate

Commercial real estate can be a great investment, but it can be difficult to come up with the money to buy it. That’s where owner financing comes in. But what is owner financing commercial real estate? Owner financing is when the owner of a property agrees to finance the purchase of that property for the buyer. This can be a great way to get into commercial properties and real estate ownership without having to go through a bank or other lending institution. In this blog post, we will discuss some of the benefits of owner financing and how you can take advantage of it!

Owner financing, which is also known as seller financing — the phrases are interchangeable — essentially denotes a seller’s willingness to fund the buyer’s acquisition of the property. In many situations, the seller also serves as the lender and establishes the loan terms.

Key Takeaways

  • Owner financing, also known as seller financing, gives buyers the option of buying a new commercial property without using a loan.
  • The owner or seller financing deal, typically with an interest rate that is higher than current loan rates and a balloon payment that won’t be due for at least five years.
  • According to the terms of seller financing, the property’s owner (the property seller) retains the property’s title as a kind of leverage up until the loan is fully paid off.
Owner Financing Commercial Real Estate

Pros and Cons of Owner Financing

Here are the pros and cons of owner financing:

Seller benefits

  • Interest on the loan is earned by the seller.
  • The capacity to sell a difficult property quickly, for a fair price, and after spending a minimal amount of time on the market. collecting monthly interest income from the buyer for the seller as a component of each loan payment.
  • If the loan can be treated on an installment basis so that the seller only pays tax on the sale when payments are received over time, the seller often saves on income taxes.
  • If the seller agrees to finance, there are more buyers available.
  • When the seller offers to finance, the sale usually closes sooner.
  • During a period of transition, the seller keeps a portion of the company to guarantee that it continues to thrive and satisfy customers.
  • With additional negotiating power, the seller can demand the full asking purchase price.
  • The seller might want to get a consistent cash flow throughout the loan term.

Seller drawbacks

  • There is a higher level of risk. The vendor assumes the risk that the buyer won’t make the required payment.
  • The seller still has a stake in the company. If the seller had preferred to leave the company completely, this is a con.
  • Less money is available for the seller to reinvest right away. If a seller requires a sizable amount of money to invest in a new business, they might not want to offer owner financing.
  • To ensure that the buyer can continue to operate the business and make payments, the seller needs to conduct additional due diligence on them. This would entail investigating factors including the buyer’s credit history and the availability of collateral.
  • If the buyer additionally has a bank loan to help with the transaction, the lender will need a subordination agreement and maybe a standstill agreement to guarantee that the buyer’s loan has legal precedence over the seller’s loan.
  • In the event of a default, the seller’s sole option for recovery might be to retake the company, which might be in far worse condition than when it was sold.

Buyer benefits

  • It provides the buyer with additional capital access to fill in any financing shortages.
  • The terms of the loan may be more lenient from the Seller than they would be from a bank. Seller financing is frequently set up as a short-term loan (3–7 years) with longer-term (10–20 years) amortization schedules and a balloon payment at maturity. In this scenario:
  • The total amount of the buyer’s monthly payments could be lowered to a level that the buyer can afford or that offers the buyer more breathing room to use cash flow to pay bills and cover costs throughout the business’s transition phase.
  • It is more likely that a standard loan application will be approved to refinance the sum owing at the conclusion of the loan term.

Buyer drawbacks

  • The seller still has a stake in the company’s future success. This could be a drawback if the seller exhibits excessive assertiveness and disregards the new owner’s autonomy.
  • Since a bank wouldn’t have the knowledge to run the business, the seller would, thus he or she would be more eager to accelerate the loan and try to retake the company if the buyer falls behind on payments to the seller.
  • There will be a need for additional closing documents. The seller financing will probably need the following papers: a promissory note, personal guaranty, security agreement, subordination agreement, UCC-1 filing, and maybe other security documents. This is not a major undertaking (e.g. Deed of Trust if real estate is secured).

Owner Financing Terms to Know

Owner financing, commonly referred to as seller financing, enables purchasers to purchase a new commercial property without utilizing a conventional loan. Instead, the owner (seller) finances the transaction, frequently with an interest rate higher than current loan rates and a balloon payment due at least five years down the road.

Doing away with the requirement for a lender, an appraisal, and an inspection can make the process of buying and selling a commercial property simpler.

If you’re interested in learning how to sell a commercial building but don’t know how to start, make sure to read how here or you can schedule a free consultation with me.


Amortization is the process of dividing a loan into periodic payments that include both principal and interest. Loans for commercial real estate, which are often entirely or partially moved depending on their kind, can be amortized in a variety of methods.

One form of financing option is interest-only loans, which let you pay nothing but interest and nothing else. This means there won’t be a principal payment for a while, which, depending on your situation and the type of it, may have both advantages and disadvantages (amortizing vs non-amortizing).


The length of a loan, or the time it takes to be fully repaid when the borrower is making scheduled payments, is referred to as the loan term. These loans can be long- or short-term, and the duration of a loan is the length of time it takes to pay off the obligation for which it was obtained.


A balloon payment is a one-time, larger-than-normal payment due at the conclusion of the loan term. Your monthly loan payment may be reduced in the years prior to the balloon payment, but you may end up owing a substantial sum at the conclusion of the loan if you have one.

Promissory note 

A promissory note, also known as a note payable, is a legal document in which one party agrees in writing to pay another party a certain amount of money on demand or at a specific future time, subject to certain terms and conditions.

Owner Financing Commercial Real Estate

What Are the Risks of Seller-Financing?

Lack of a trustworthy buyer or one who will not deal with you honestly is by far the biggest risk. It is crucial to conduct both financial and business reputation due diligence on your buyer as a result.

Examine your buyer’s financial records, tax returns, and credit history. Additionally, it is important to obtain references from banks and companies. Remember to proceed with caution if the Buyer refuses to provide you with references.

In order to determine the possibility that the Buyer will fulfill their obligations under the transaction, try to gain an accurate picture of how they manage their finances.

Why Would a Seller Consider Creative Financing?

This method is advantageous since it allows the buyer to receive financing without incurring transaction fees and without using up funds to secure a new loan. Using this method, the buyer can acquire a property right away without having to endure the lengthy loan origination procedure.

What are typical owner financing terms?

The majority of owner-financing agreements involve brief loans with minimal monthly installments. The loan is often amortized over 30 years (keeping monthly payments low), with the final balloon payment due in only five to ten years.

Does owner financing go on your credit?

Typically, owner financing does not appear on the buyer’s credit report. Although sellers are recommended to run a credit check nonetheless, there is normally a significant down payment required (about 10 percent to 15 percent) to make up for the fact that the financing isn’t based on the buyer’s income or credit history.

Who holds the title in seller financing?

In accordance with the rules of seller financing, the owner of the property (the property seller) keeps the title to the property as a kind of leverage until the loan is fully repaid.


Owner financing is also known as seller financing, owner carryback, the owner will carry, bearing the note, commercial owner financing, and owner carried financing. Even when the property in question is a building rather than commercial land for sale by an owner, owner financing is sometimes referred to as a “land contract” in some areas.

Though this financing option does carry some risk, it can be an excellent way for buyers to obtain commercial real estate transactions quickly without incurring additional fees or using their own funds. Ultimately, whether you choose owner-financing or a more traditional loan will depend on your needs and the property you are looking to purchase.

Are you interested in learning more about owner financing? If so, be sure to schedule a free call with me today to discuss your options and get started on the path to purchasing your dream commercial real estate!

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