The short version
- A seller note is often about ten to twenty five percent of the price
- A UCC lien gives you a claim on business assets if the buyer defaults
- SBA lenders usually limit debt near three times adjusted cash flow
- Seller financing widens the buyer pool and can close faster
How Buyers Pay
Under about five million dollars, deals are typically funded with cash, seller financing, an SBA loan or a mix. Each has tradeoffs, and the right blend depends on price and the buyer's resources.
What a Seller Note Is
You agree to be paid part of the price over time. A note often covers roughly ten to twenty five percent of the price and is secured by a lien on business assets, filed under the Uniform Commercial Code.
That lien gives you a claim if the buyer stops paying. Your attorney can explain how it ranks behind a bank lender.
Why Sellers Agree
- It widens the pool of buyers who can afford your price
- Deals with seller financing can close in about six months, while SBA deals often take nine to twelve
- It signals confidence in the company
- Payments over several years can spread capital gains tax
Where the SBA Fits
SBA lenders often limit total debt to about three times adjusted cash flow. That means SBA backed buyers often afford a multiple near four times or less. Higher prices need more cash from the buyer or a seller note.
An SBA deal is really two deals, one between buyer and seller and one between buyer and bank, and both must close together. Lenders may also want a lien subordination, which your attorney negotiates early.
Risks to Weigh
A note means you carry some risk after closing. Ask about the buyer's experience, require financial statements while the note is outstanding and set clear default terms.
Red flags include a buyer who claims SBA funding with no application started, or one who suddenly asks for a larger seller note.
Related Reading
See how structure plays out in working capital terms and how earnings are rebuilt in the add back guide. Tax effects are on the final return page.
Questions to Ask a Buyer
How much of the price is cash at closing? Who else has a lien on the assets? What happens if the company misses a payment, and how fast can you act? Written answers beat verbal promises.
Your attorney can add protections such as personal guarantees, insurance requirements and limits on selling assets while the note is open.
Curious what a buyer could afford? Request a private price range.