Seller Note
Also known as: Seller Financing · Seller Carry
A seller note is a portion of the purchase price the buyer owes the seller as a loan rather than cash at close, typically structured at 4–7% interest over 3–7 years.
What is seller note?
Seller notes shift part of the purchase price from cash-at-close to a structured payment over time. They serve two purposes: they reduce the buyer's financing requirement (which makes more deals feasible), and they keep the seller economically aligned with the business's post-close performance.
Typical agency seller notes are 20–40% of the purchase price, 3–7 year terms, 4–7% interest. They are usually subordinated to bank financing (the bank gets paid first if anything goes wrong), which means the seller is taking real credit risk on the buyer.
The interest rate matters more than it might seem. A 5% rate on a $1M note over 5 years is roughly $130K of interest income to the seller — real money. But that interest is taxed as ordinary income, while the underlying principal is taxed at capital-gains rates. The blended after-tax return depends heavily on the spread.
Why it matters in agency valuation
Sellers asked to take a note are taking credit risk on the buyer. That risk should be priced. If the buyer is a high-quality institutional acquirer, a 5% note at 5 years is reasonable. If the buyer is an individual using SBA financing, the note should be priced at 7%+ and structured with personal guarantees, real collateral, and acceleration clauses if the agency hits trouble.
Example
Related terms
A letter of intent (LOI) is a non-binding outline of the major economic and structural terms of a proposed acquisition, signed before formal due diligence begins.
An earnout is a portion of the purchase price paid to the seller after closing, contingent on the business hitting specified retention, revenue, or EBITDA targets — typically 10–30% of the total price across 1–3 years.
An asset sale transfers specific assets of the agency (the book of business, contracts, equipment) to the buyer while leaving the legal entity behind with the seller — the most common structure in P&C agency transactions.
Last reviewed: April 24, 2026
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