Admin
So, you’re gearing up to sell your business. Or maybe you’re looking to buy one. Either way, there’s one small but surprisingly powerful element of the deal structure that often gets less attention than it deserves: the seller’s note.
It’s not flashy. It won’t show up in the headlines. But when deals are close — like “almost there, but not quite” close — this humble financing tool can be the bridge that gets both sides across the finish line.
First, What Exactly Is a Seller’s Note?
Let’s demystify it. A seller’s note (sometimes called seller financing) is basically a loan from the seller to the buyer as part of the purchase price.
Here’s how it works in plain English: the buyer doesn’t pay 100% of the business price upfront. Instead, they pay part of it in cash (or through bank financing), and the seller agrees to finance the remaining portion over a set period of time — usually with interest.
It’s like saying, “I’ll let you pay off the rest in monthly payments while you run the business.”
Simple, right? But incredibly impactful — for both sides.
Why Would a Seller Agree to That?
Good question. After all, doesn’t every seller want to walk away with a clean wire transfer and a celebratory cocktail?
Yes… but in the real world, things aren’t always that straightforward. Sometimes a buyer can’t secure traditional financing for the full amount. Or the deal’s valuation feels a little high-risk. Or maybe the business is healthy, but hard to value (think seasonal revenue or a heavy owner-operator model).
This is where the sellers note becomes a strategic tool. It makes deals happen that otherwise wouldn’t. And for the seller, it can also mean a better price — or a shot at interest income that sweetens the pot over time.
From the Buyer’s Perspective: A Little Less Pressure
Let’s be honest — buying a business is a big leap. Between due diligence, legal costs, SBA loan hoops, and actual working capital needs, even well-prepared buyers sometimes hit cash limits.
Seller notes offer breathing room.
They reduce the buyer’s need to raise capital from banks or investors. They signal seller confidence — which can be a psychological nudge in the right direction. And they provide an opportunity to build rapport with the seller, especially if there’s going to be a transition period where you work together for a few months post-sale.
It’s not just about the money — it’s about mutual trust. And that’s where seller notes shine.
How Do Seller Notes Typically Work?
The structure is usually pretty simple. Terms often look something like:
- 20–30% of the total purchase price
- 3–5 year term
- Fixed interest rate (usually between 6%–10%)
- Monthly or quarterly payments
- Often subordinate to senior debt (like an SBA loan)
But here’s the cool part: terms can be flexible. They can be interest-only for a period. They can include performance-based contingencies. They can even be forgivable under specific conditions (like the business missing key revenue targets).
That flexibility makes seller’s note terms one of the most creative parts of deal-making. And when structured right, they can unlock win-wins where buyers feel supported — and sellers feel protected.
What’s the Catch?
No tool is perfect. For sellers, the main risk is obvious: you’re getting paid over time, and that depends on the buyer running the business well enough to keep up with payments.
If the buyer tanks the business, you might never see that money.
That’s why many sellers include protective clauses — like personal guarantees, security interests in the business assets, or rights to repossess equity if payments stop. It’s also why a lot of seller notes are paired with thorough due diligence and solid transition planning.
For buyers, the catch is mostly psychological. You’ve got to be okay having a financial obligation to the person who used to own your business — someone you might still be talking to regularly, especially in the first few months.
If your relationship sours or communication breaks down, things can get awkward fast.
Why More Deals Should Include a Seller’s Note
The truth is, seller notes are a sign of alignment. When a seller is willing to finance part of the deal, it shows they believe the business will continue performing — even without them. That’s powerful. It gives the buyer confidence. It tells banks, brokers, and advisors that the deal isn’t just built on projections and hope.
In fact, in many small business transactions (especially those under $5 million), seller financing isn’t just common — it’s expected.
A Real-World Example
Let’s say a business is listed for $1.2 million. The buyer has $300K in cash and gets an SBA loan for $700K. That leaves $200K uncovered.
Instead of walking away or renegotiating price, the seller agrees to carry a note for $200K, paid over 4 years at 8% interest. The deal closes. The seller gets most of their money up front and earns additional income. The buyer gets the deal done without needing to raise more cash.
Everyone wins. And the note becomes part of the transition plan, not a hurdle.
Final Thoughts: Small Terms, Big Impact
In the end, a seller note is more than just a financial tool. It’s a handshake in writing. It’s a way for buyers and sellers to meet in the middle — especially when a deal is almost there, but something’s just not clicking.
If you’re selling, it might be your best leverage. If you’re buying, it might be the bridge between “almost” and “done.”
