What Seller Financing in CRE Can Offer You

In a tough lending market, it’s important to look at alternatives.

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If you’re a commercial real estate investor, you know that traditional financing has gotten tougher. 

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Lenders are tightening underwriting standards, interest rates remain high, and capital is harder to access. That means securing a commercial property deal can be more challenging than ever.

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Seller financing in commercial real estate is a financing strategy that allows you to bypass these obstacles. With it, you can structure deals directly with property owners and close transactions faster. 

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But how does seller financing work? What are the risks? And can you really use it to scale your portfolio?

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This guide will break down seller financing in commercial real estate, explain how it works, outline typical seller financing terms, and help you determine if it’s the right move for your next investment property.

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Contents

1. What is seller financing in commercial real estate?
2. How common is seller financing in commercial property?
3. What are typical terms for seller financing in commercial real estate?
4. How does seller financing work commercially? A step-by-step breakdown
5. Seller financing in commercial real estate: Close deals faster with Duckfund

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Seller financing works the best with fast EMD funding. Find out how Duckfund's equity funding can help you nail that commercial property you’ve always wanted.

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What is seller financing in commercial real estate?

Seller financing in commercial real estate is when the property seller acts as the lender in a deal. The seller offers a loan to cover the purchase price instead of the buyer seeking one from traditional lenders. 

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The buyer makes monthly payments directly to the seller, with agreed-upon interest rates and a repayment schedule. 

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Many people refer to these financing arrangements as commercial real estate owner financing, but the two are slightly different. 

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With owner financing in commercial property, the buyer takes full ownership immediately once the sale is complete, although they still owe the seller the loan amount. 

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Seller financing, meanwhile, is carried out over a set period of time. It typically comes with a promissory note that contains the specific loan terms and the lump sum (known as a balloon payment) to be paid at the end of the term. 

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Both options are useful alternative real estate financing options if you don’t qualify for traditional bank loans, and can open up doors to new CRE deals. 

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How common is seller financing in commercial property?

Seller-financed commercial property is less common than that secured with traditional financing but is becoming more popular, especially in niche markets or when conventional lending is restrictive.

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Commercial real estate in the United States has seen the biggest increase in seller or owner financing in recent years, according to real estate specialists Note Investor. Their research found that total CRE deals using the method more than doubled between 2019 and 2023, reaching almost $9.3 billion.

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The rise of commercial real estate seller financing in the US

Source: Note Investor

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Blackstone made the headlines last year when they announced they were using seller financing to enhance a $1B student housing sale, offering below-market debt to attract buyers.

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For smaller investments, seller financing is often used in investment property deals where buyers may struggle to secure a commercial lender due to credit history, underwriting challenges, or the property's financials don’t quite stack up. 

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Seller financing is also a recession-proof way of financing. In fact, it’s well-suited to an economic downturn. “Seller financing can be a great option in a recession because it gives investors the ability to acquire assets when traditional financing sources are scarce,” says Pace Morby, head of one of the largest real estate investing communities, SubTo, writing for Forbes. 

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“It's also an effective way to combat inflation, as the interest rate on the seller-financed loan is negotiable with the owner of the asset.”

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The benefits of seller financing attract a broader pool of potential buyers by offering flexible financing terms, lower upfront costs, and creative financing options like land contracts or carryback arrangements.

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While not yet standard in CRE, seller financing is appearing more often in small business acquisitions, multifamily commercial real estate, and situations where property owners want to defer capital gains tax or secure a higher sale price. 

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What are typical terms for seller financing in commercial real estate?

Seller financing comes with many of the common terms you’ll have come across in commercial real estate, including down payments, interest rates, loan terms, and due diligence.

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However, the concept of a promissory note (as mentioned above) is possibly unfamiliar to someone new to real estate investing. This is a legal document with essential terms of the deal clearly stated, making sure that both parties are clear on the agreement.

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You may also hear ‘creative financing’ used a lot, which sounds worse than it is. This simply is a broad term for unconventional methods of financing a real estate deal, including seller financing for business, lease options, and commercial building financing. In a market where lending options are tight, it’s become more widely used as creative financing options offer much more flexibility than traditional bank loans.

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Foreclosure is another important term. With seller (or owner) financing, foreclosure would involve the lender or seller seizing the property if the borrower defaults on the loan. It's important to understand that with seller financing, the seller could initiate foreclosure if the buyer fails to make payments.

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How does seller (or owner) financing work commercially? A step-by-step breakdown 

Seller financing is particularly useful in commercial real estate because it lets buyers and sellers negotiate direct terms without a lender. The seller instead acts as the lender, providing the buyer with financing to purchase the property. 

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Having this option is a useful tool to have in today’s competitive real estate market, especially when buyers struggle to secure financing through traditional channels.

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Here’s a step-by-step breakdown of how this process works, from the perspective of you, the buyer.

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1. Initial agreement

You and the seller agree on the terms of the deal, including the purchase price, interest rate, down payment, and loan duration. A real estate agent will probably have played a part in bringing you together.

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You draw up a financing agreement, often with the help of a real estate attorney to ensure all legal aspects are covered for events, such as if the buyer defaults. 

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2. Promissory note creation

A promissory note is created to outline the terms of the loan, including payment schedule, interest rates, and consequences of default. This is the legal document that binds you to the seller's terms.

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3. Down payment

You make an upfront down payment — typically a percentage of the sale price. The quicker you can do this the better, to avoid rivals swooping in. 

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Funding restrictions, however, can often hold this stage up and increase the risk of losing the property.

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4. Monthly payments

You start making monthly payments directly to the seller, which may include interest and a portion of the principal. 

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The loan terms will specify the duration and whether there are any balloon payments at the end of the loan period.

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5. Property transfer

Once both parties sign the purchase agreement, the property title is transferred to your name, but the seller retains a lien on the property until the full loan amount is repaid.

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6. Loan servicing

The seller, or sometimes a third-party service provider, will manage the loan, ensuring that payments are collected and distributed as agreed.

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 7. End of term/final payment

At the end of the loan term, you make the final balloon payment (if required) plus any closing costs. Once the full amount is paid, the lien is removed from the property, and the seller’s claim is fulfilled.

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 8. Foreclosure (if you default)

If you default (hopefully not, but you never know), the seller can start foreclosure and reclaim the property in accordance with the terms outlined in the promissory note.

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Seller financing in commercial real estate: Close deals faster with Duckfund

Seller financing gives you flexibility, but to win competitive deals, you also need liquidity at every stage — from securing earnest money to structuring commercial real estate equity and debt. 

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That’s where Duckfund comes in.

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With our Earnest Money Deposit (EMD) financing, you can confidently submit offers without tying up personal capital, so that you meet seller requirements without disrupting cash flow.

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Need long-term funding? Duckfund’s equity and debt financing solutions help investors structure LP/Co-GP equity, preferred equity, and senior debt — key to scaling your portfolio while keeping financing terms flexible.

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Duckfund provides the capital solutions to move quickly, so whether you’re competing for a high-value asset or looking to close a seller-financed deals, you can negotiate better terms, and secure the best investments.

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🔹 Secure your deal with EMD financing
🔹 Refinance and scale with flexible equity and debt solutions
🔹 Win more bids with institutional-backed funding

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Ready to secure your next deal with Duckfund’s equity and debt financing? Take the next step in growing your real estate portfolio and contact us today.