Why would a someone selling a solid business agree to a seller note?

February 20, 2025

by a searcher from Harvard University - Harvard Business School in Washington, DC, USA

I've had this conversation with a few people, including brokers, and haven't come out with great clarity. I see people post about doing transactions with 60-80% seller notes, and yet, brokers always laugh at me when I mention seller notes and act like most buyers do deals without them. Who is telling the truth?!

I understand the tax benefits for the seller, but I'm not sure they offset the benefits of having cash on hand that they can use or invest -- especially if they are retiring.

Same with interest payments leading to a higher purchase price - not sure that's worth waiting around for the 5-10 years that the SBA mandates.

So what am I missing? What are some truly compelling reasons that a seller with a GOOD business with many interested buyers will hold a seller note for you?

Sincerely,
A Confused Searcher Just Trying To Get A Deal Done

(posting anonymously because I'm actively conversing with people on this site about deals)

Reply by a searcher
in Chicago, IL, USA

Also, Broker will often attempt to laugh you out of the room when it comes to seller notes (for a couple of reasons). I recently spoke to a broker who told me he enjoys selling businesses under $500k EBITDA, for the sole reason that 1/3 of them come back to him within 18 months for resale (heartbreaking). You also have to understand the brokers compensation structure. Many of them receive an upfront fee (for generating the CIM and other leg work), as well as a commission at the time of sale - a seller note effectively reduces their commission or stretches it out over time. There are ways to uncover these details and correctly incentivize the broker to work with you rather than against you.

It depends on the business, the Buyer and the Seller - I’ve personally closed good deals as high as 90% seller financing (let me explain)…

If a business is used to carrying large notes, like machinery leases, mortgages, investor notes, etc., there’s a good chance it may be desensitized to the potential risk of a seller note.

As the Buyer, if I want the Seller to carry a large note it’s my job is to earn their trust and make a relevant and appealing case as to why. This might be through industry experience, finding a business that has a road block which would inhibit other buyers or traditional financing, or it can even be as simple as them receiving interest payments rather than a bank. Maybe I have growth plans or am building a rollup that there is a compelling case for rollover equity. Maybe I only make rollover equity an option if they’ll carry a larger note.

The biggest part of achieving a high seller note though, typically comes down to the Buyer archetype, which means it comes down to your qualifying criteria. Old school owners, someone who has extracted enough value from the business that it’s more about time freedom or legacy than money, or someone who understands the tax implications.

There are hundreds of reasons why someone will take a large seller note, message me and we can connect in more depth.

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