Seller Note Terms?

searcher profile

September 26, 2023

by a searcher from University of Southern California in Los Angeles, CA, USA

What are the current market terms for seller notes?

10
50
572
Replies
50
commentor profile
Reply by a searcher
from Brigham Young University in Provo, UT, USA
As mentioned above - no perfect/right answer. Currently working on a deal where seller agreed to carry a 15%+ note at 6% interest. 30-month standby and 7.5 amort after that. I view the seller's willingness to at least discuss terms like these as either confidence in their business, or a potential red flag if they won't at least have the discussion. Of course I still do the needed diligence, but the fact they agreed to these terms gives me some level of added comfort in their confidence of the future success of the business.
commentor profile
Reply by an intermediary
from Harvard University in Dallas, TX, USA
If the SN is truly supposed to be market, depends on subordination to any senior debt. If subordinated, it should be at a higher rate in theory because of greater risk, maybe 2-3% than the senior but that rarely happens. If the SN is being used to bridge a price gap, the terms may not be market. Recently saw a deal where there was a $400K price gap. Buyer met the price but they agreed on a $600K SN at a low interest rate with no payments for 3 years. This reduced Buyer's other loan at a higher interest rate plus pushed out cash flow. Just depends on the purpose of the SN and the details of the deal.
commentor profile
+48 more replies.
Join the discussion