- If sellers don't offer carryback financing, they will have fewer purchasers or will have to reduce their sales price.
- If sellers are willing to take carryback financing, it indicates they are confident in the purchaser's ability to make a profit.
- Lenders often prohibit or restrict carryback financing, because they want their borrower to have enough cash to pay debt service plus make a profit. Carryback financing reduces the borrower's cash flow and profit levels. Lenders also want the borrower to have significant personal investment in the business, and carryback financing reduces that investment.
- Not disclosing carryback financing to lenders can be considered fraud.
- If the business fails, there are major legal entanglements to enforce a subordinate loan.
- Carryback financing can be used as a way to inflate the price of a business, if realistically the business cannot support the primary loan plus carryback financing.