When structuring a forgivable seller note in an LOI, it’s crucial to balance the buyer’s need for performance incentives with the seller’s desire for guaranteed payout. Forgivable seller notes are often tied to specific performance milestones or timelines, where forgiveness may occur if targets like revenue thresholds or customer retention are met. Fully forgivable notes are less common, and sellers tend to agree more readily when they have a role in the business post-sale or see alignment with the buyer’s goals. Generally, shorter forgiveness timeframes are more attractive to sellers, while buyers might prefer longer periods to ensure sustained business stability. As ^redacted‌ mentioned, this all depends on the dynamics of the deal.

The size of the seller's note can also impact the seller's willingness to agree to forgiveness, with larger notes often being partially forgivable. Sellers may be open to such terms if they’re highly motivated to close or if there are additional incentives, such as equity or board roles. In practice, forgivable notes work best when both parties are confident in the business’s success and share a vision for its future, especially in cases with smaller notes or when the seller continues to have an active role after the sale.

Don't? My 4 Non-Negotiables for Buyers Proven Earnings Only: “No paying for ‘potential.’” Full Due Diligence: “No blind bids.” Earn-Outs: “Protect yourself with contingent payments.” Walk-Away Power: “Set a max bid and stick to it.” Side note: better yet, learn how to find better businesses for sale instead of taking a chance of losing everything, after you discover your earn-out or forgivable seller note reduces the price you paid, but leaves you bankrupt, and the business' employees unemployed.