Alternative Financing Mechanisms?

October 03, 2025

by a searcher from Rice University - Jesse H. Jones Graduate School of Business in Austin, TX, USA

During your search, what are some "alternative" or "creative" financing structures that you've considered outside of traditional debt and equity? I would like to create a list of structures to consider going forward that can either: - Maximize returns - Incentivize the Seller - Or reduce equity down payment requirements Examples might include owner financing, mezzanine debt, earn-outs, etc. Curious to hear what has been effective in your experience.

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Reply by a searcher
in San Diego, CA, USA

Great question — I’ve had to lean on quite a few creative structures over the years, especially when the goal was to protect cash at close or keep sellers motivated post-deal. A few that have worked well: • Seller financing with step-up payments. Early payments stay light, then scale up as EBITDA stabilizes. Gives breathing room and shows the seller you’re betting on performance. • Rollover equity with a put/call option. Lets the seller stay in for 10–30% with a pre-agreed buyout formula later. Keeps everyone aligned and reduces tension around timing an exit. • Earn-outs with a guaranteed floor. Sellers like having some protection as it avoids that “all upside or nothing” feeling. • Advisory or consulting note. Pay part of the purchase as a consulting fee over time. Spreads out the payout and keeps their brain in the business during the transition. • Cash flow assignments. If the business has solid recurring revenue, allocate part of it to fund a seller note or mezz piece directly. Cuts the equity need fast. • Vendor or supplier loans. Sometimes strategic partners or key vendors will extend terms or prepay inventory to support the acquisition provides some free working capital. • Employee buy-ins or profit interests. A great way to tie key managers to post-close performance and justify a higher leverage structure. • Sale-leaseback on owned property. Pulls equity out of real estate to reduce the upfront cash hit. Stacking two or three of these together can completely change the capital profile of a deal. The best setups usually make the seller feel like a partner, not an ex-owner.

Reply by a searcher
from University of Melbourne in Australia

Cap Table Options include EQUITY Third Party Deposit Partner(s) Seller Roll in Gov Grant Supplier Customer Sponsor Deposit (ie your own cash) Sale Leasebacks Employee DEBT Seller Note Earn Out Commercial Loan Private Credit Asset Loan Inventory Loan Accounts Receivable Loan Mezzanine Loan PIK Loans Credit Cards Employee Debt (I actually had a guy in my MBA cohort loan money out to his employer) Of course, I think the terms are more important than the sources of capital. Some completely alternative financing options are X% Profits over X Years. Ie 50% Profits first five years Islamic Finance Rent to Buy Islamic Finance Purchase and Resell Also wrote this post on Seller notes a few months ago. Not applicable in the US but applicable in other jurisdictions https://searchfunder.com/post/searchers-this-one-epic-tax-hack-will-save-you###-###-#### on-your-seller-note

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