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Seller note
Also called seller financing, vendor take-back note, seller carryback.
A promissory note the seller of a business accepts as part of the purchase price, paid out of the acquired business's future cash flow rather than at closing.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
It bridges the gap between what a buyer can raise and what a seller will accept, and it signals that the seller believes the business will keep performing. Terms are negotiated privately: interest rate, amortisation, balloon, security, and whether the note is guaranteed by the buyer personally.
In SBA-financed acquisitions the note's treatment depends on its standby status. A note on full standby — no payments of principal or interest for a defined period, and no enforcement — can count toward the buyer's required equity injection under agency rules. A note that pays currently generally cannot, and its payment sits inside the lender's debt-service coverage calculation as an obligation competing with the SBA loan.
Seller notes are almost always subordinated to the senior lender by a written agreement that blocks payment and enforcement while the senior loan is in default.
Where this one catches people
Buyers assume any seller note reduces the cash they need at closing under an SBA structure. Only a note structured to satisfy the standby conditions counts as equity, and the conditions are specific about duration and about whether interest may accrue or be paid. A note drafted by the parties' own attorneys without reference to those conditions is routinely rejected weeks into the file.
Where you will meet this term
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Seller note — common questions
What does seller note mean?
A promissory note the seller of a business accepts as part of the purchase price, paid out of the acquired business's future cash flow rather than at closing.
Where does seller note catch people out?
Buyers assume any seller note reduces the cash they need at closing under an SBA structure. Only a note structured to satisfy the standby conditions counts as equity, and the conditions are specific about duration and about whether interest may accrue or be paid. A note drafted by the parties' own attorneys without reference to those conditions is routinely rejected weeks into the file.
Is seller note the same as an interest rate?
Seller note is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does seller note apply to?
Term Loan, SBA Loan.
Is there a worked example of seller note?
Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.
What else should I read alongside seller note?
Debt service coverage ratio, SBA 7(a) loan, Standby agreement, Subordination agreement.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.