Does anyone have experience with a “big” sellers note?

May 10, 2024

by a searcher from Wayne State University in Michigan, USA

Curious to know if anyone here has experience with a sellers note about 50% of the price of a business. Is that outrageous? Just trying to understand different scenarios before approaching the seller or think of going the Traditional funding route.

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Reply by a lender
from Bloomsburg University of Pennsylvania in Ambler, PA 19002, USA

Really depends on the circumstances and what terms/conditions are being contemplated. Most sellers, in my experience, in exchange for risk of carrying substantial paper may require something in return.. whether that be upside/earnout provisions or would be willing to carry more of the purchase, but at the expense of a much shorter amortization (then say compared to SBA which could have a material impact on cash flow). Also if you are say self funding the rest of the deal (in your scenario 50% + deal costs, working capital,etc) does that provide you with ample post transaction liquidity or is it the best return on your cash. Is it possible and viable in certain circumstances.. absolutely. Skin in the game from the seller can always help in the transition and enabling you to feel comfortable that seller would potentially be aligned to giving you all the tools to succeed post close (in order to better guarantee payment on their note). But again would really be the fine print and t&c that may or may not provide a more advantageous structure than traditional funding sources

Reply by a professional
from University of Michigan in Detroit, MI, USA

Hi ^redacted‌, it's unusual but not unheard of, and depends on the type of business, market conditions, etc. This typically gets discussed when there is some factor making it difficult to sell the business--for example, where there is extremely high customer concentration. All things being equal, a seller who has options is unlikely to agree to more than approx. 10% in seller financing. Happy to discuss further, if helpful.

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