Why a 0% Seller Financing Offer Makes Your LOI Look Amateur
If you are sending out letters of intent and getting nothing but polite declines or complete radio silence, you might be wondering what went wrong.
Sometimes the answer is “nothing.” Deals are competitive. Sellers have options. Rejection happens.
But sometimes the answer is sitting right there in your LOI, quietly waving a red flag and making the seller question whether you are ready to run their business.
Let’s talk about the mythical unicorn of deal terms: 0% seller financing.
The 0% Seller Note Fantasy
Somewhere along the way, the internet decided that sellers regularly loan buyers hundreds of thousands of dollars for free. No interest. No upside. Just vibes.
I see this all the time. Buyers genuinely believe that offering a 0% interest seller note is attractive, clever, or aggressive in a good way.
It is not.
If part of your purchase price is paid over time, that portion is a loan. Loans require interest. When they do not have interest, things get weird very quickly.
Why Sellers Hate 0% Interest Notes
Yes, sellers like interest because it pays them for the risk they are taking. That part is obvious.
But the bigger problem is not emotional. It is tax related.
When a seller provides a loan below market interest, the IRS steps in with something called imputed interest income. This means the seller gets taxed as if they earned interest, even if they did not actually receive it.
In plain English, the seller pays taxes on money they never got.
For example, if the applicable federal rate is 4% and your note pays 0%, the IRS pretends the seller earned that 4% anyway. On a large seller note, that creates a very real tax bill.
You are not just asking the seller to finance your purchase. You are asking them to write a check to the IRS for the privilege of doing so.
That is a tough sell.
It Also Signals Inexperience
Every deal has less attractive terms. That alone does not make you look unqualified.
What makes sellers nervous is when a buyer clearly does not understand the risk they are pushing onto the seller. A 0% interest note tells the seller you may not understand basic deal mechanics, tax exposure, or incentives.
That is not the energy you want to bring into a transaction built on trust and long term cooperation.
The Simple Fix Most Buyers Miss
You do not need to over engineer this.
A smart LOI will at least reference the Applicable Federal Rate, often called AFR, as the minimum interest rate on any seller note. That alone tells the seller you understand the tax implications and are not asking them to absorb unnecessary risk.
Even better, it keeps the conversation focused on the business, not on whether you know what you are doing.
If AFR is a brand new concept to you, that is okay. But it is a sign you should pause before putting seller financing terms into your LOI and get educated first.
What to Do Instead
If you want your LOI to be taken seriously:
Include interest on any seller note
Reference AFR as a baseline
Understand imputed interest income before proposing creative structures
Do not outsource deal knowledge entirely to the internet
Seller financing can be a powerful tool. Used poorly, it can quietly kill your deal before negotiations even begin.
If you want to understand how these terms work and how to structure offers that sellers respect, subscribe to my YouTube channel. Knowing this stuff upfront will save you time, money, and a lot of awkward rejections.
Smart deals are not about being aggressive. They are about being informed.
