Seller Financing Pros & Cons: Seller Note vs. Earnout

by a searcher from University College London, University of London

2 years ago

To me, Seller Note is debt with no tie to performance, Earnout is deferred performance-based payment.

How does Seller Note reduce risk of buying a bad company? Is Earnout always better (if available)?

1 like
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27 comments

professional from Hobart and William Smith Colleges

From a legal perspective, a seller note is a locked-in amount, which requires very little assessment of what is owed on the note. However, an earnout gives the buyer some "flexibility" over what is owed, and also some control (practically speaking) over when the earnout payments are due. In other words, a bad company could mean one with bad book-keeping or simply bad books.

1 year ago | like reply | 0 likes

searcher from University of Southern California - Marshall School of Business

Does anyone have a high-level sense for market terms for a non-SBA deal Seller note?

1 year ago | like reply | 0 likes

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