Glossary
Seller note
On this page4 sections
What it is
A seller note is deferred purchase price: the seller takes part of what they are owed as a loan from them to you, repaid over time under agreed terms.
Why buyers want one
- It reduces cash at closing, which is usually the binding constraint.
- It signals the seller's confidence. A seller willing to be paid out of the business's future performance is making a statement about that performance. A seller who insists on all cash is also making one.
- Part of it can count toward the equity injection — on strict terms.
The terms that decide everything
The amount is the least important thing about a seller note. What matters:
- Standby status. Only a note on full standby — no principal or interest for the term of the 7(a) loan — can count toward the injection, and then for no more than half of it [1] . See standby agreement.
- Whether it is an earnout in disguise. Seller earnouts are prohibited on SBA change-of-ownership deals [1] . A note whose payments flex with performance is likely to be treated as one. See earnouts.
- Rights of offset. On many deals the note is the only seller money still in reach after closing, which makes it the practical backstop for indemnity claims. Whether and how you can offset is a drafting question — and one to confirm against the standby terms. See escrow, holdbacks and indemnities.
- Security and personal guarantees, and where they sit relative to the lender's position.
What to do with it
Agree the standby position with the seller before documentation, not during it. See seller financing.
Frequently asked questions
Why would a seller agree to finance part of the price?
Usually because it closes the deal, and often because it is the only way to reach the price they want. It is also a signal worth reading in both directions: a seller willing to be paid out of the business's future performance is telling you something, and so is a seller who insists on all cash.
Does a seller note count toward my equity injection?
Only if it is on full standby, and then only up to half the required injection. A note being paid monthly does not count at all. That cap is why a seller note cannot turn an acquisition into a no-cash deal.
Can I offset an indemnity claim against the note?
It is the mechanism buyers most often reach for, because on many deals the note is the only seller money still within reach after closing. Whether it works depends on the drafting and on the standby terms, since a note with no near-term payments gives an offset right much less to bite on. Raise it with counsel and confirm the mechanics with your lender.
Sources cited on this page
Every mutable number on this page — program caps, tax rules, thresholds, filing deadlines — traces to one of these primary sources. Rules change; check the source before you act on the number.
- 1 U.S. Small Business Administration. SOP 50 10 8.1 — Appendix 15: 7(a) Changes of Ownership. https://www.sba.gov/document/sop-50-10-lender-development-company-loan-programs
Educational only — not legal, tax, lending, or investment advice. Confirm specific rules, rates, and forms with the relevant New York State agency, attorney, CPA, lender, or insurer before acting. See the editorial policy and methodology for how sourcing and review work.