Quick takeaways
- Seller notes often cover roughly ten to twenty five percent of the price and are secured by a lien on the business assets.
- Financing widens the buyer pool and can close faster than an SBA loan alone.
- Lenders may limit what the seller can demand, so structure the note early.
- Ask for security, a clear payment schedule and remedies if the buyer stops paying.
What a seller note is
In a seller financed deal, the buyer pays part of the price over time instead of at closing. The seller becomes a lender, collecting payments with interest.
These notes commonly cover about ten to twenty five percent of the price, though every deal differs.
Why buyers want one
Lenders often cap debt near three times adjusted cash flow, which limits what an SBA buyer can afford. A seller note fills the gap and shows the seller believes in the business.
It also widens the pool. SBA loans often do not pencil for smaller deals, so seller financing can make a sale possible.
Speed and structure
Seller financed deals can close in about six months, compared with nine to twelve months when SBA loans are involved. SBA deals are really two deals, one with the seller and one with the bank, and both must close together.
What to ask for
- A lien on the business assets, usually filed with the state
- A written payment schedule and interest rate
- Late payment terms and a default remedy
- Financial reporting from the buyer while the note is open
Landlords and lenders sometimes require your lien to take second place. Attorneys negotiate that, and it can gate the closing, so raise it early.
Tax benefit
Installment payments can spread capital gains tax over the years you receive them. Ask your CPA to model this before you accept terms.
Warning signs
Be careful with a buyer who claims SBA financing but has not started a loan, or who shifts to a seller note late in the process. Ask for a lender prequalification letter or proof of funds before spending your time.
Where to go next
Settle the split of your price in price allocation in an asset sale. Then find your price range.