The short version
- Most deals under about five million dollars use cash, a seller note, an SBA loan or a mix.
- A seller note is often ten to twenty five percent of the price and is secured by a lien.
- SBA lenders often cap debt near three times adjusted cash flow.
- SBA deals usually close slower than seller financed ones.
The Three Main Ways
Under about five million dollars, buyers usually pay with cash, a seller note, an SBA loan or a blend. Each changes your risk and your timeline.
Seller financing widens the pool of buyers, and SBA loans often do not pencil below about three hundred thousand dollars.
Seller Notes
A seller note is a loan from you to the buyer for part of the price, often ten to twenty five percent. It is usually secured by a lien on the assets. You are paid over time, and you carry the risk that the buyer fails.
SBA Loans
SBA lenders often cap debt near three times adjusted cash flow, so an SBA buyer can usually afford about four times or less. Higher prices need more cash from the buyer.
These deals are really two deals, one between buyer and seller and one between buyer and bank, and both must close together.
What It Means for Timing
A deal funded mostly by a seller note can close faster, often in about six months. SBA deals more commonly take nine to twelve months from start to finish.
What a Note Means for You
With a seller note, you are a lender to your buyer. Ask for a lien on the assets, a personal guarantee where possible, regular payments and clear default terms.
Your attorney should draft the note, and your CPA can show how installment payments spread the tax over the years you receive them.
Do Not Count on a Bigger Loan
The SBA loan limit is set by Congress, and a buyer's lender will not stretch it for your price. If your number needs more than a lender will fund, the gap has to come from the buyer's cash, a seller note or a lower price.
Next Steps
Read the letter of intent terms and ask your CPA about final returns before you accept any note.