If you’ve ever sat in a café with an entrepreneur who’s just sold their business, you’ll hear a lot about closing days, valuation highs and lows, legal marathons — and, if you listen closely, the term “seller note” will likely make a guest appearance. It doesn’t get the same attention as flashy deal multiples or VC-backed term sheets, but make no mistake: seller notes are often the glue that holds an acquisition together.
So, let’s get real about what they are, why they matter, and how they quietly shape the world of mergers and acquisitions.
Not All Deals Are Paid in Full
In the perfect version of a sale, the buyer writes a fat check, the seller rides off into the sunset, and the business keeps humming. But that’s rarely how it goes. In most real-world cases — especially when small to mid-sized businesses change hands — there’s a funding gap. That’s where seller note m&a conversations come in.
A seller note is essentially the seller saying, “Hey, I’ll let you pay me part of the price over time.” It’s a loan, plain and simple. The buyer agrees to pay interest and principal on a fixed schedule, and the seller becomes a lender for a portion of the deal. No banks. No VC strings. Just two people trusting each other (with lawyers, of course).
The Emotional Currency Behind a Seller Note
Beyond balance sheets, seller notes are about human psychology. They send a signal — a big one.
When a seller agrees to carry a portion of the sale through a seller note, they’re not just being flexible; they’re saying they believe in the business’s future under new leadership. That kind of skin in the game can reassure nervous buyers and tip the scales when bank financing or SBA loans fall short.
It’s like when you’re selling your old car to a friend and agree to let them pay in two parts. You wouldn’t do that unless you thought they were good for it — and unless you thought the car was gonna keep running.
The Paper Trail: What’s Actually in a Seller Note?
At its core, a seller note is a promissory note. A legal IOU. It spells out the loan amount, repayment terms, interest rate (usually somewhere between 6–10%), maturity date, and any penalties for missed payments.
And yes — sometimes there’s collateral involved. But often, seller notes are unsecured, meaning they’re based on trust and the strength of the buyer’s operating plan. Which is why the reputation of both parties matters more than spreadsheets here.
This brings us to the formal name: seller promissory note. That’s what your lawyer will call it. Same concept, just dressed in a suit.
It’s Not Just for the Buyer’s Benefit
Let’s flip the lens for a moment. Why would a seller even agree to this?
Here’s the deal: seller notes aren’t just charity. They can be a smart move for the seller too.
Imagine you’re selling your business for $1 million, and a buyer offers $800K upfront and asks you to carry the remaining $200K via a note. Not only do you potentially get to close the deal faster, but you’ll also earn interest on that $200K — and maybe even negotiate a higher sale price in return for your flexibility.
In the M&A world, a seller note can sweeten the pot — both emotionally and financially.
A Real-Life Scenario (Because Examples Speak Louder)
Let’s say Katie owns a boutique digital agency. She finds a buyer, Josh, who loves the company but only has access to $600K in cash and bank financing. The agreed sale price is $750K.
Rather than walk away, Katie offers to carry a $150K seller note over five years at 8% interest. Josh agrees. Katie gets her full value, plus monthly payments (and a little interest), and Josh walks into the business with less pressure from day one. It’s not charity — it’s strategy.
Risks? Of Course. But They’re Manageable
Like any loan, seller notes come with risks. What if the buyer mismanages the business? What if they default?
These concerns are real. But that’s what structured agreements are for — clauses that trigger penalties, guarantees, even asset recourse if needed.
Also, experienced sellers will often ask for a personal guarantee or a second lien on business assets. They’re not trying to be difficult — they’re just ensuring the handshake has a paper trail.
Seller Notes vs. Earn-Outs vs. Equity
Quick clarification — seller notes aren’t earn-outs, and they’re not equity.
An earn-out depends on future business performance. If the company hits certain targets, the seller gets paid more. That’s variable and risky.
A seller note, on the other hand, is fixed. It’s a loan. Whether the company thrives or limps along, the buyer owes the agreed-upon payments. That certainty is why many sellers prefer notes over earn-outs.
And no — seller notes don’t mean you own a piece of the business. You’re a lender now, not a co-owner.
Why M&A Pros Respect Seller Notes
If you ask a seasoned M&A advisor what keeps smaller deals moving, they’ll probably shrug and say: “Flexible financing.”
That flexibility often shows up as a seller note. It’s not sexy. It’s not explosive. But it’s the reliable workhorse of deal-making — the middle ground when funding gaps threaten to blow up a perfectly good acquisition.
Some of the best deals ever made happened not because someone had the biggest check, but because both sides found a creative way to make things work.
Final Thoughts: It’s More Than Just a Note
If you’re buying or selling a business, don’t overlook the humble seller note. It’s a handshake, a bridge, and a safety net — all wrapped into one.
