Decide What You Can Afford to Carry
A seller note can build trust, bridge a funding gap, and help you negotiate a higher price. Compare the cash you need at closing with when you will get paid and what happens if payments stop.
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Rajiv Khatri
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Sarah Khatri
Managing Partner
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Related Reading on Business Valuation and Sale Preparation
When Carrying a Seller Note Helps You Close on Better Terms
A buyer offers $1.05 million for your Florida business but wants you to carry $150,000 of the price. A second buyer offers $950,000 in cash at closing. The first offer is $100,000 higher on paper, but it puts $50,000 less in your hands on closing day. The question is whether the note gives you enough upside to accept the wait and the risk.
Seller financing can build trust, bridge a funding gap, and give you room to ask for a higher price. In some sales, the buyer’s cash and approved financing will not cover the transaction without a note. Before you agree, decide how much you need at closing, how long you can wait for the rest, and what you would do if payments stopped.
A seller note is a written promise to pay an agreed portion of the purchase price over time, usually with interest. You hand over the business at closing and become a creditor for the unpaid balance. The note’s value depends on when you can collect, how likely repayment is, and what rights you have if the buyer defaults.
Why Carrying a Note Can Help You Close
When you’re willing to leave a portion of your proceeds in the deal, you show that you have a financial stake in the business continuing to perform after you leave. That can reassure a buyer who is worried about customer retention, the management transition, or the durability of earnings. The signal carries more weight when your financial records support what you’re asking the buyer to believe. Our quality of earnings guide explains how owners can prepare that evidence.
A note can also solve a specific closing problem. A qualified buyer may have a lender ready to fund and cash to contribute but still be short of the agreed price. If a modest note closes a documented gap and fits the lender’s terms, a sale that would otherwise stall can move forward. Ask what your note makes possible. A narrow funding gap is easier to assess than a proposal that needs you to finance a large share because the business cannot support the debt.
Flexibility on payment can give you room to ask for a higher total price. If your terms make a sound deal financeable, you can negotiate what you receive in return for carrying the balance. Compare each offer on net cash at closing, expected future collections, and downside if the note is late or unpaid. The price you can reasonably ask for still depends on the business’s value and the buyer’s ability to pay.
How Much of the Price Should You Carry?
Start with your cash needs. Subtract debt payoffs, fees, tax reserves, escrows, and closing adjustments from the expected closing payment. The figure left is what you can use for retirement, another investment, or your next business. Decide on a minimum before negotiations center on the headline price.
A 5% to 10% note on a $1 million purchase price would leave $50,000 to $100,000 payable later. That can be enough to bridge a modest gap. Some transactions call for a considerably larger note, particularly if bank financing covers less of the price. Set your maximum by asking how a delay or loss would affect your plans. Avoid committing to a percentage before you know the lender’s terms and the source of repayment.
The IBBA and M&A Source Q2 2026 Market Pulse survey reports seller financing across the deal sizes it studies. The chart shows the average mix of consideration in each segment. It does not establish how many SBA transactions require a note or what percentage you should carry in your own sale.
When a Seller Note Matters in an SBA Sale
A seller note can be critical when an SBA 7(a) acquisition would otherwise fall short of the lender’s approved financing plan. In some cases the note helps meet the required equity injection. In others it may be separate seller debt subject to its own lender conditions. SBA does not require every seller to carry a note. Ask the lender to tell you which role the note would play and when you can be paid before you sign a letter of intent.
Under SBA SOP 50 10 8.1, effective October 1, 2026, seller debt counted as equity must be subordinated to the lender and on full standby for the term of the 7(a) loan. That means no payments of principal or interest during that term. Eligible limited equity sources combined may cover no more than half of the required injection.
For example, an eligible initial acquisition with $1 million in total project costs and a 10% minimum injection would require $100,000 of equity. A qualifying $50,000 standby note could cover half of that requirement. The remainder must come from eligible sources outside the combined limited-source allowance. This is a calculation based on total project costs and the applicable injection, which may differ from the purchase price. Confirm the lender’s written treatment before budgeting for any payments.
Seller Note or Earnout in a Larger Sale?
A larger buyer may propose a note, an earnout, or both if its financing and deal structure permit. A note generally fixes the debt the buyer owes you. An earnout makes some of the price conditional on agreed results after closing. A note exposes you to collection risk. With an earnout, you also face the risk that the target is missed or that decisions outside your control affect the measurement.
If the buyer wants an earnout because you disagree on future growth, agree on a formula, reporting rights, and how disputes will be resolved. If the buyer needs a note to bridge a funding gap, focus on the repayment schedule and priority. The current SBA rules prohibit seller earnouts in applicable 7(a) changes of ownership. Confirm the financing path before negotiating contingent payments.
The Pros and Cons of Carrying a Seller Note
What you can gain. You can build confidence in the handover, keep a qualified buyer in the process, and give a financeable offer a path to closing. In some cases you can negotiate a higher total price or earn interest on the balance.
What you give up. You receive less cash at closing and depend on the business under new ownership to support repayment. A senior lender may be paid ahead of you or restrict your remedies. Even a signed note with collateral or a guarantee can be hard to collect.
What you still have to manage. You need a process for tracking payments and reports, and a plan for taxes before the funds arrive. The IRS guide to installment sales explains that depreciation recapture may be taxable in the year of sale even if payment comes later. Ask your tax adviser to estimate your after-tax proceeds on both timelines.
How to Limit Your Risk Before You Sign
Verify where the money will come from. Review the buyer’s equity contribution, the lender’s written terms, and projected cash flow after bank debt, payroll, working capital, and replacement management costs. Ask whether the business can still pay you if a major customer leaves or collections slow. Qualify the buyer before giving detailed financial information or agreeing to carry a balance.
Make the payment calendar explicit. Agree when payments begin, how the balance is calculated, and when the full amount comes due. A hypothetical $150,000 note at 8% interest, amortized over ten years with a balloon after three, would pay roughly $1,820 per month and leave about $116,760 due after 36 scheduled payments. Ask how that balloon would be paid if refinancing falls through.
Review your rights alongside the lender’s rights. Ask your attorney to explain collateral, lien priority, any guarantees, reporting rights, and what happens if a payment is late. Confirm whether the buyer can offset disputed claims against your note and whether the senior lender must consent before you can enforce your rights. Have your attorney reconcile the purchase agreement, note, security documents, and lender agreements before signing.
Set terms you can live with. If a proposal depends on a note that exceeds your limit, ask for more cash at closing, a smaller balance, or a shorter term where the lender permits it. Decide in advance when to walk away. A higher asking price is useful only if the structure supports what you need from the sale.
How Sailfish Helps You Compare Offers and Negotiate the Note
Sailfish Equity Advisors starts with your goals and cash needs. We help you compare an offer with little or no seller financing against a higher offer with a note. We lay out the cash at closing, scheduled payments, any standby period or balloon, and what you would receive if payments were delayed or missed. You can see what the higher price is buying you and how much risk you are being asked to take.
We help qualify the buyer, identify what the note would solve, and compare it with other ways to close the gap. We bring the lender into the discussion early and coordinate with your attorney and tax adviser so the proposed terms, approved financing, and closing documents tell the same story. Your attorney advises on enforceability and remedies. Your tax adviser shows when taxes may be due.
If you are getting ready to market the company, start with our guide to selling your Florida business. If you already have an offer, schedule a confidential conversation with Sailfish and bring the proposed cash payment, note amount, lender terms, and your minimum cash requirement.
Questions Florida Sellers Ask About Carrying a Note
Does carrying a seller note help me close the deal?
It can when your note covers a documented funding gap and the buyer can support repayment. It can also reassure a buyer that you believe in the business after the handover. Confirm that the lender accepts the proposed structure and that the buyer has the resources to operate the company after closing.
Can I ask for a higher price if I offer seller financing?
Yes, payment flexibility can give you room to negotiate a higher total price, especially when it makes a supportable transaction financeable. Calculate how much of the increase you receive at closing and how much depends on future payments. Compare after-tax proceeds and the value of the note if repayment is delayed.
Is a 5% or 10% seller note enough?
It can be enough to bridge a small gap. On a $1 million purchase price, the amounts would be $50,000 and $100,000. A lender may assess an SBA equity contribution using a different base and may require standby. Ask how much the deal actually needs before deciding how much you can carry.
Do SBA loans always require a seller note?
No. A note may make an SBA acquisition possible when the approved financing plan has a gap. A note counted toward the buyer’s required equity must satisfy current SBA standby and subordination requirements. Ask the lender whether your note counts as equity, what payments are permitted, and what happens if the buyer defaults.
How can I protect myself if the buyer stops paying?
Ask your attorney to explain your collateral, lien priority, guarantees, reporting rights, and remedies. Review any restrictions imposed by a senior lender. Start with the buyer’s ability to repay, because legal protections alone do not ensure collection. Limit the amount you carry to what you could tolerate losing or receiving late.
By Sarah Khatri, Managing Partner, Sailfish Equity Advisors.