Do you know what the going terms are for seller debt?

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November 26, 2021

by a searcher from Carleton College in Leesburg, VA, USA

I am writing up an LOI for a smallish deal ($3 million enterprise value? … still pinning that down) that would necessarily be heavier than usual on seller debt. It’s an asset purchase from an ESOP. I have never proposed seller financing. What would be typical terms?

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Reply by a lender
from The University of Chicago in Schaumburg, IL, USA
While everything is negotiable, a mid-single digit interest rate for 10% - 30% of the purchase price over five to ten years seems to be the norm. Lenders always prefer an interest only feature if possible. If the note is forgivable/reduceable based upon inability to meet a threshold level of revenues or earnings in the first two or three years, then the note is definitely interest only until its face amount becomes "fixed" after which it then amortizes.
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Reply by a searcher
from Harvard University in Milwaukee, WI, USA
There are a lot of factors with something like this. Your lender will usually weigh in on what they are willing to allow to help manage cash flow. I have seen 6% interest with 4 year balloon and P&I starting immediately but some lenders may want to adjust that depending on your cash flow model and other debt obligations. It is never too early to talk to a commercial lender on deals.
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