Seller Note Push Back on Length of Note

July 08, 2022
by a searcher from Babson College - F.W. Olin Graduate School in Boston, MA, USA
A couple of times during my search I have got a lot of push back from owners on seller notes that are 5 years, the majority wanting it fully paid off in 2.
Wondering how people have approached this part of the negotiation, particularly with SBA deals where a 2 year pay out is very aggressive?
I have struggled with it a little bit in the past and coming up with the same push back on future deals, in particular on deals without a broker.
from University of Illinois at Chicago in Madison, WI, USA
Would also say that this depends a bit on whether it is a brokered deal vs proprietary. I’ve founded that sellers who are represented by a broker are far more likely to take a note. In smaller deals, seller notes are extremely common. In smaller deals, sellers are also less likely to know this (or care). When brokers are involved they usually precondition the client to the idea of a note and they are more willing to accept it.
In addition, it has been helpful for me to point out the tax benefits of a longer note, avoid fully amortizing long notes (lean towards balloons). When all else fails; I .”blame it” on my lender..
from California State University, Sacramento in Auburn, CA, USA
I hope that all makes sense.
Robert