What are some creative terms for 90% seller financed deal?

January 06, 2024

by a searcher from Pennsylvania State University in Orlando, FL, USA

I am working with a seller who is willing to seller finance almost the entire deal with some cash upfront. Since we do not have to worry about the SBA regulations with respect to earnouts, rollover equity, etc., what are some creative terms? It is too hairy for SBA apparently but I am willing to get hairy to make it happen.

This is a construction business but low CAPEX. The seller wants to stay involved in the company in some capacity, and we have a good relationship so I am open to earnouts. Also are there any creative structures for the terms on the seller note? What about ways I can incorporate working capital into the deal?

This is open-ended and I want to be anonymous for this one but I would appreciate ideas. What are some of the most creative ways that deals have been done, assuming there are no rules. He sets the price, I set the terms.

Reply by a searcher
from Babson College in Syracuse, NY, USA

You could have multiple seller notes where one is P+I and one is interest-only. I’ve seen people tie the principal to the performance of the business where it can ratchet up if the business outperforms or ratchet down if the business outperforms. You could also have the interest-only note be interest-only for say five years and then have say three years of balloon payments to pay the principal down. Our original structure included an earnout to be paid via a five year seller note but we ended up enhancing the cash price and eliminating the earnout.

Reply by an intermediary
from The University of Chicago in Chicago, IL, USA

The answer depends on knowing more details. Few big points.
Who is the seller, the business or the shareholder?
How to make sure Price is paid with pre-tax dollars? How to minimize seller taxes?
Beyond this many questions related to business, industry, management, quality of financials, etc.
Happy to help.

+3 more replies.

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