A seller note is a loan from the seller to the buyer for part of the purchase price, documented as a promissory note and repaid over time with interest. In SBA-financed sales of architecture, engineering, and surveying firms, the seller note typically covers a small slice of the deal, often 5 percent, so the seller still receives 95 to 100 percent of proceeds in cash at closing.
The role a seller note plays in an SBA deal
SBA 7(a) acquisition loans require a 10 percent equity injection. A seller note placed on full standby, meaning the seller receives no payments on it for the period the lender requires, can count for up to half of that injection. The buyer brings 5 percent in cash, the seller carries 5 percent on standby, and the bank funds the rest. The seller's note gets repaid after the standby period ends.
On a $3,000,000 sale structured this way, the seller holds a $150,000 note and collects $2,850,000 in cash at closing. When the buyers fund the full 10 percent themselves, there is no note at all and the seller collects 100 percent at the table.
A 5 percent note is not seller financing
Do not confuse a small standby note with old-fashioned seller financing, where the owner carries 50 to 80 percent of the price and effectively becomes the buyer's bank for a decade. In that structure the seller bears the risk of the firm's future performance long after giving up control of it. A bank-financed deal flips that: the bank takes the repayment risk, and the seller's exposure is capped at a single-digit percentage of the price.
Seller notes above SBA limits
Seller notes also bridge deals that outgrow SBA caps. When a firm's price exceeds what SBA 7(a) financing will cover, the portion above the limit is typically structured as a seller note or other negotiated consideration, sized so the bank's debt service requirements still work. Even then, the substantial majority of proceeds is paid in cash at closing.
