Seller Note Terms. Looking 4 Feedback

October 29, 2025

by a searcher from Clemson University in Denver, CO, USA

Hi - curious what "market" is for seller note T&Cs...namely, note duration / term, interest only periods (applicability and duration), interest rate, etc.? I am thinking of doing a 5 year term. 2 year interest only @ 6%, amort / repayment begins thereafter. This would sit behind a 24 month earnout contingent on Seller's continued employment in good standing (she wants to continue being CEO), retention of key employees & TBD amount of other staff, and achievement of revenue-based milestones. Seller note would make up 50-60% of purchase price. Appreciate any and all feedback here. Thanks! EDIT: I AM NOT USING SBA, SBIC, OR ANY OTHER EXTERNAL CAPITAL

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Reply by a lender
from Cornell University in Los Angeles, CA, USA

Hi ^redacted‌ - nice to meet you. Happy to answer this one. Right now, most seller notes are carrying interest rates between 5% and 6%, typically with a 24-month standby period. Though in some recent deals I’ve seen rates go as high as 7%. For SBA-financed deals, it’s often better to structure the seller note so that repayments begin after five years and one day. This way, the note’s payments are excluded from the SBA’s historical DSCR calculation, helping the deal show a stronger debt-coverage ratio. We have a lot experience financing various companies via the SBA. If you ever need help talking through a deal, I am happy to help. We work with all the major SBA lenders. The bank pays us after your loan closes, so this is a 100% free service for you. You can email me directly at redacted or schedule a meeting with me: https://cal.com/francodeguzman/30min. Look forward to chatting!

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

Hi ^redacted‌, the first thing that stands out is the earnout. Is this an SBA deal? If so, you cannot do a traditional earnout. Instead, you can make the note forgivable (and therefore function in a similar fashion to an earnout). If this is not an SBA deal, you can do an earnout but typically this isn't a note term (it is included in the purchase agreement). A two year standby period is fairly common, although, again, if this is an SBA deal and the purpose of the standby period is to have the note count towards the equity injection, the standby period has to match the term of the SBA loan. Finally, while 6% interest is on the low end of what I am currently seeing, it is not unreasonable. Let me know if you want to discuss your deal further. Feel free to reach out at redacted and we can set up a time to talk.

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