Can a lender require the seller to stay on as a consultant before approving my loan?

Yes, and this is a fairly common condition for lenders financing the purchase of an owner-operated business. A lender may see the departing owner's specific knowledge, customer relationships, and personal goodwill as a real risk to the business's post-closing performance, and by extension to loan repayment, particularly where the buyer has limited experience in that specific industry, so requiring some form of continued seller involvement for a defined transition period can be a condition the lender insists on before releasing funds.

The specific form that involvement takes, whether the seller stays on as an employee, a paid consultant, or in some other advisory capacity, along with its duration, compensation, and scope of responsibilities, is then negotiated directly between the buyer and seller as part of the purchase agreement itself, rather than dictated in detail by the lender, which is typically concerned with the fact of continued involvement rather than its precise legal form. A buyer facing this kind of lender condition should factor the negotiated transition arrangement into the purchase agreement early, since both the lender and the seller need to be satisfied with it.