Why Buyers Ask You to Carry Paper
For companies selling under about $5 million, most deals are paid for with some mix of three things: the buyer's cash, an SBA loan and a note from the seller.
A seller note means part of your price is paid to you in installments after closing, with interest, instead of all at once.
Buyers ask for it for two reasons. It lowers the cash and the bank debt they need at closing. And it shows them you believe the company will keep earning after you leave.
How an SBA Lender Sees Your Note
Many buyers in this range borrow through the SBA 7(a) program, which lends up to $5 million. The lender appraises the business, checks your tax returns and decides how much it will lend.
When the appraisal or the buyer's cash falls short of your price, a seller note often fills the gap. Lenders may ask that part of your note sit on standby for a while, which means you are not paid on it during that period.
Your broker and attorney should read the lender's terms with you before you agree. The details decide when your money actually arrives.
Terms That Matter on a Seller Note
- Amount. A share of the price, set by what the lender and the buyer can carry.
- Interest rate. Negotiated, and usually above what a savings account pays.
- Length. Often several years, with monthly or quarterly payments.
- Standby. Any period when payments to you are paused because of the bank loan.
- Security. What you can take back if the buyer stops paying, usually a lien behind the bank.
- Personal guarantee. Whether the buyer stands behind the note personally.
Earnouts Are a Different Animal
A note is a debt. The buyer owes it no matter how the company does. An earnout is a payment that depends on results after closing, such as keeping a large customer for two years.
Earnouts show up when a buyer sees real risk, like a customer who makes up a big part of sales. They move risk back onto you, so read them carefully and keep the targets simple and measurable.
Protecting Yourself as the Lender
Once you carry a note, you are the buyer's lender. Treat the buyer the way a bank would. Ask about their experience, their cash and their plan for the company.
Ask for regular financial statements while the note is open. Keep your business entity alive and in good standing until you are paid, because your attorney may need it to collect.
That last point matters in Missouri, where closing out a corporation or LLC is a filing of its own. See Missouri articles of dissolution after an asset sale for the timing.
The Tax Side of Getting Paid Over Time
Getting paid over several years can spread the tax on your gain over those years, but only if the sale is set up for it. Tax is owed on the gain, meaning price minus your basis, not on the full price.
Talk to your CPA before you sign a letter of intent. Structure usually affects what you keep more than a small change in price does.
Before You Agree to Anything
Know your number first. What is my business worth explains how price is built, and how selling works shows where financing gets settled in the process.
When you are ready for a private estimate, send the form or call (816) 555-0167.