Variable Rate Seller Note?

searcher profile

September 25, 2025

by a searcher from Northwestern University - Kellogg School of Management in Chicago, IL, USA

I hope everyone is doing well. Has anyone tried to put together a variable rate for a seller note? Possibly tied to the SBA rates or 10 year treasury? This can obviously work favorably in either direction depending on where rates are. If so, what are some lessons learned from it? Would you recommend this approach given speculation of rates coming down further?
0
6
96
Replies
6
commentor profile
Reply by a searcher
from Harvard University in Charlotte, NC, USA
Thanks for the tag, Luke. If you get past the hurdles Hunter mentions (flexible senior debt holders, sophisticated seller), typical anchors would be SOFR or Prime. Not sure the juice is worth the squeeze in most situations.
commentor profile
Reply by a searcher
from Indiana University, Bloomington/Indianapolis in Indianapolis, IN, USA
Unless the seller values the variable rate to a degree that it creates a discount (which for the reason you just mentioned I would have to assume they would actually view it dis-favorably), I’d think it just adds complexity and unwanted variability on cash flow (for both operator and more senior debt holders). The baseline exposure of the industry/firm to interest rates may matter, though. It may make a lot of sense if the business is already sensitive to rates.
commentor profile
+4 more replies.
Join the discussion