Why would a someone selling a solid business agree to a seller note?

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by a searcher from Harvard University - Harvard Business School
in Washington, DC, USA

1yr ago

Why would a someone selling a solid business agree to a seller note?

I've had this conversation with a few people, including brokers, and haven't come out with great clarity. I see people post about doing transactions with 60-80% seller notes, and yet, brokers always laugh at me when I mention seller notes and act like most buyers do deals without them. Who is telling the truth?!

I understand the tax benefits for the seller, but I'm not sure they offset the benefits of having cash on hand that they can use or invest -- especially if they are retiring.

Same with interest payments leading to a higher purchase price - not sure that's worth waiting around for the 5-10 years that the SBA mandates.

So what am I missing? What are some truly compelling reasons that a seller with a GOOD business with many interested buyers will hold a seller note for you?

Sincerely,
A Confused Searcher Just Trying To Get A Deal Done

(posting anonymously because I'm actively conversing with people on this site about deals)

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reply by a searcher 1yr ago
from MCI in Linz, Österreich

Motivation of the seller is key. But in times of bank financing becoming more difficult due to a rising number of insolvencies (recession in Central Europe), smaller seller notes become a very common way to "fill the gap" between what the bank is willing to finance and (your own) equity financingredacted% have become quite common in German-speaking markets - especially when the seller's price expectations diverge from the bank's financing parameters. Everything above ("creative financing") depends on the seller's motivation and your personal connection (trust) with the seller.

reply by a searcher 1yr ago
from University at Buffalo, State University of New York in New York, NY, USA

Because they are a prospect and not a suspect. You don't waste your time on people who don't want to sell.

Sellers can usually get a higher sales price with a sellers note. Plus there might be some tax benefits.

Banks also like it if you can explain it properly.

Also I'd be very cautious of what the broker tells you since they have their own agenda that may not be in the best interest of you or the seller.