How to Finance the Sale of My Business: The Complete Seller’s Playbook (2026)

If you are working out how to finance the sale of my business at the top of the market in 2026, the honest answer is that almost no buyer brings a single check to the closing table. According to the SRS Acquiom 2025 Deal Terms Study, 72 percent of sub-$50M private-target deals close with at least one form of deferred or contingent consideration, and the Capstone Partners 2026 Lower Middle Market Survey reports that the average buyer-funding stack on a sub-$5M deal now includes three to four separate financing pieces. The seller who understands the stack walks away with 5 to 15 percent more total consideration than the seller who insists on all cash.

What This Actually Means

Selling a private business almost never means a single wire transfer for the full purchase price on closing day. The headline number on the purchase agreement is built from a stack of financing components: senior bank debt or SBA debt the buyer raises, buyer equity (cash and rollover), and seller-provided components such as a seller note, an earnout, and an escrow holdback. Each piece carries different timing, different risk, and different tax treatment. The seller’s job is to understand which pieces add value, which pieces add risk without compensation, and where the boundaries should be drawn.

The reason this matters is mechanical. The SBA 7(a) program caps any single loan at $5 million, and under the 2024 SBA Standard Operating Procedure 50 57 2, the buyer is required to put in at least 10 percent equity (down from 15 percent under the prior SOP). That math alone forces most sub-$5M deals into a stack: SBA loan plus buyer equity plus, almost always, a seller note. On deals between $5M and $25M, senior bank debt typically reaches three to four times trailing EBITDA, sponsor equity covers another 30 to 40 percent of purchase price, and the gap is filled with seller paper, mezzanine debt, or rollover equity.

The right question is not whether to finance the sale. The right question is which financing tools belong in your deal, how much of each, and how to structure them so the deferred pieces actually get paid. The rest of this guide unpacks every tool, the math behind each piece, the structuring protections that matter, and how the pieces fit together on a real $5M deal.

The 7 Financing Tools Every Seller Should Understand

1. The Seller Note

A seller note is a promissory note issued by the buyer to the seller for a portion of the purchase price, typically 10 to 30 percent of the deal value. The buyer signs an obligation to repay the seller over a defined term, usually three to seven years, with interest typically between 6 and 10 percent depending on the prevailing prime rate and the perceived risk of the buyer. The note is secured by the business assets through a UCC-1 filing, by a personal guarantee from the buyer principals, or by both. On SBA-financed deals, the seller note is contractually subordinate to the senior SBA debt, which means the SBA lender gets paid first if the business defaults.

The seller note serves two purposes. It helps a buyer close who cannot raise the full purchase price in cash and senior debt, and it sends a credibility signal to the senior lender that the seller believes the business will perform. SBA lenders explicitly view a seller note as risk-sharing and often approve loans they would otherwise decline when a seller note is in place. The 2024 SBA SOP 50 57 2 allows a seller note to count toward the buyer’s 10 percent equity requirement only if the note is on full standby (no principal or interest payments for the first 24 months) and matches the SBA loan term. Sellers should understand that a standby note that pays nothing for 24 months at 0 percent interest is effectively a discount, not financing.

Reasonable seller-note terms for a non-standby note in 2026: 6 to 10 percent interest, prime plus 2 to 4 percent, 5-year amortizing term, monthly principal and interest payments, secured by a second lien UCC-1 on business assets, personal guarantee from the buyer and any operating principals, acceleration on change of control, and an audit-rights clause for the first 24 months. The seller should cap any single seller note at 25 percent of purchase price to avoid becoming the buyer’s primary financing source.

2. Rollover Equity

Rollover equity is the portion of the sale proceeds that the seller reinvests into the buyer’s new entity, typically when the buyer is a private equity sponsor executing a platform or add-on acquisition. Rollover percentages usually run 10 to 40 percent of sale proceeds. The seller takes most of the proceeds in cash at close, rolls a meaningful piece into the new entity, and participates in the second sale when the PE firm exits the platform in 4 to 7 years.

The tax advantage is significant. Properly structured rollovers qualify as tax-deferred reorganizations under Internal Revenue Code Section 368(a) (F-reorganization) or as tax-deferred contributions under Section 351, which means the seller pays no federal capital gains tax on the rolled portion at closing. Tax is owed only when the rolled equity is eventually sold in the second transaction. The 2025 PitchBook PE Exit Outlook found that on platform sales averaging a 2.4x multiple of invested capital at exit, sellers who rolled 25 to 30 percent of original proceeds typically received 1.5 to 2.0 times the original rolled amount on the second bite, before federal tax.

The structuring tradeoffs are governance and liquidity. Rollover equity holders are minority owners of a PE-controlled entity. Common protections to negotiate: tag-along rights so the seller participates in any future sale on equal terms, drag-along carve-outs that protect against forced sale below a minimum return, information rights including monthly financials and board observer status, and put rights that allow the seller to exit at a defined valuation after a defined holding period if the PE sponsor delays a second exit beyond 7 years.

3. The Earnout

An earnout is deferred contingent consideration tied to post-closing financial or operational milestones, typically measured over 12 to 36 months. Earnouts appear in roughly 30 to 40 percent of private-target deals in the $5M to $250M range per the SRS Acquiom 2025 Earnout Study, with the average earnout representing 18 to 25 percent of total consideration. Only 50 to 60 percent of earnouts pay out in full according to Capstone Partners 2025 outcomes research, which means the earnout is the riskiest component of seller financing from the seller’s perspective.

The full earnout playbook deserves its own treatment, and we cover the metric selection, add-back schedule, operating covenants, acceleration triggers, and dispute resolution in the earnout negotiation guide. The short version for stack-design purposes: an earnout is most defensible as a bridging tool when the seller is projecting accelerated growth and the buyer is underwriting a more conservative base case. The earnout should bridge the gap between those two cases, not extend it. Caps should be generous or absent, the metric should be EBITDA with locked add-backs where possible, and the measurement period should be 12 to 24 months rather than the 36 months buyers prefer.

4. Escrow Holdback

An escrow holdback is a portion of the cash purchase price, typically 5 to 15 percent, that the buyer deposits with a neutral escrow agent at closing to secure the seller’s representations, warranties, and indemnification obligations under the purchase agreement. The escrow holdback is not financing in the strict sense, it is collateral for breaches that may be discovered post-close. The funds typically release to the seller on a defined schedule, often 50 percent at 12 months and 50 percent at 18 to 24 months, less any amounts claimed by the buyer against verified breaches.

The 2025 ABA Private Target M&A Deal Points Study reports that 87 percent of private-target deals include an escrow holdback, with 8 to 10 percent of purchase price being the modal escrow size and 18 months being the modal release period. The trend over the last five years has been toward smaller escrows offset by representation and warranty insurance, which is now standard on deals above $20M and increasingly common on deals down to $5M. R and W insurance shifts the indemnification risk from the seller to an insurance carrier in exchange for a 2.5 to 4.0 percent premium on coverage limits, and it allows sellers to walk away with a 0.5 to 1.0 percent retention escrow rather than 8 to 10 percent.

Sellers should negotiate the escrow as a defined-term amount with a stated release schedule, baskets and deductibles that limit small claims, caps on indemnification exposure (typically 10 to 15 percent of purchase price as a cap), survival periods that match the escrow release schedule (so the seller is not exposed beyond the date funds release), and a clear dispute resolution mechanism if the buyer asserts claims against escrow.

5. Buyer SBA 7(a) Financing

The SBA 7(a) loan is the most common buyer financing tool for business acquisitions under $5 million in purchase price. The 2024 SBA Standard Operating Procedure 50 57 2 sets the rules. The maximum loan size is $5 million, the buyer must contribute at least 10 percent equity (down from 15 percent under the prior SOP), the maximum term is 10 years for business acquisitions, and the interest rate is prime plus a spread typically running 2.75 to 3.0 percent for variable-rate loans.

What sellers need to understand about buyer SBA financing: the SBA underwrites both the business and the buyer, the process typically takes 60 to 120 days from term sheet to close, and the lender will require a third-party valuation of the business that may differ from the LOI price. If the SBA valuation comes in below the LOI price, the buyer must either increase equity contribution, the seller must accept a price reduction, or the deal restructures into a higher seller note. Sellers should require buyer-provided SBA pre-qualification letters before signing the LOI to filter out buyers who cannot actually close.

The 2024 SOP also allows seller notes to count toward the buyer’s equity requirement under specific conditions: the note must be on full standby (no principal or interest payments) for at least 24 months, the note rate must not exceed prime, and the note term must match the SBA loan term. A standby seller note used to meet the SBA equity requirement is effectively a price reduction, since the time value of money over a 24-month no-payment period at zero interest reduces the present value of the note by 10 to 20 percent.

6. Mezzanine Debt

Mezzanine debt is junior-secured debt that sits between senior bank debt and equity in the capital stack. Mezzanine financing typically carries interest rates of 12 to 18 percent, may include warrants or equity kickers that bring all-in returns to 18 to 22 percent, and has a 5 to 7 year term with bullet maturity. Mezzanine is most common on deals above $5M where senior bank debt and sponsor equity together cannot cover the purchase price.

For sellers, mezzanine debt in the buyer’s stack is generally a positive signal. It means the buyer is well capitalized, has a sophisticated lender willing to underwrite the business, and is less likely to need a large seller note. Common mezzanine lenders on lower-middle-market deals include Brookhaven Capital, Caltius Capital, Goldner Hawn, Maranon Capital, and Atalaya Capital. Each of these firms underwrites the business and the sponsor extensively, which adds underwriting rigor to the deal that benefits the seller.

The risk to sellers comes when a seller note sits behind a mezzanine layer rather than directly behind senior bank debt. The intercreditor agreement will subordinate the seller note to both the senior lender and the mezzanine lender, which means in a default scenario the seller stands third in line. Sellers should review the intercreditor agreement carefully and prefer a senior-only subordination where possible.

7. Equity Rollover Funds and Continuation Vehicles

A more recent financing tool, increasingly common since 2022, is the equity continuation vehicle or rollover fund. These are PE-sponsored vehicles designed to provide rollover equity to sellers who do not want to take a minority position directly in the buyer’s portfolio company. The seller rolls a portion of proceeds into a diversified fund that holds positions in multiple platform companies, which spreads single-company risk while preserving tax deferral under Section 351 contribution rules.

The 2026 PitchBook Continuation Fund Outlook reports that continuation vehicles facilitated $68 billion of secondary transactions in 2025, up from $24 billion in 2020, with sub-$50M business acquisitions being the fastest-growing segment. For sellers in industries with active PE rollups (insurance brokerage, dental practices, MSPs, HVAC), continuation vehicles are worth evaluating as an alternative to single-company rollover.

Worked Example: A $5 Million Deal Stack

Consider a fictional business, Cascade Mechanical Services, a $1.2 million SDE residential and light-commercial HVAC company with 14 employees, $5.4 million in trailing revenue, and a 12-year operating history. The owner is selling at a 4.0x SDE multiple, putting purchase price at $5.0 million. The buyer is a first-time operator with $500K of personal equity and a $3.5M SBA 7(a) commitment from a regional lender. The gap between buyer-funded sources and purchase price is $1.0 million.

The deal closes with the following stack: $3.5M SBA 7(a) loan at prime plus 2.75 percent, 10-year amortization; $500K buyer equity (cash from buyer plus a small contribution from family); $1.0M seller note at 8 percent interest, 5-year amortization, secured by second-lien UCC-1 on business assets, personal guarantee from the buyer; and a $500K performance earnout tied to 24-month cumulative EBITDA hitting 95 percent of trailing run-rate. Closing-day cash to seller is $4.0 million net of broker fees, transaction costs, and a $500K escrow holdback released in two equal tranches at 12 and 18 months.

Over the life of the seller financing: the $500K escrow releases $250K at 12 months and $250K at 18 months, bringing total realized proceeds to $4.5M. The $1.0M seller note pays approximately $20,300 per month including interest, returning $1.218M to the seller over 5 years ($1.0M principal plus $218K interest). The $500K earnout pays $500K in full at 24 months if Cascade hits 95 percent of trailing EBITDA, which is achievable but not guaranteed.

Tax treatment matters here. Because the seller note and earnout both extend beyond the year of sale, the seller can elect installment sale treatment under Section 453 and pay capital gains tax only as cash is received. The first-year tax bill is calculated by applying the gross profit ratio (gain divided by total contract price) to cash received in year one. If the seller’s basis is $400K, total gain is $4.6M, total contract price is $5.0M, gross profit ratio is 92 percent, and first-year tax applies to 92 percent of $4.0M received at close, or $3.68M of recognized gain. The remaining $920K of gain is recognized over the following years as the note and earnout pay out. Interest income on the seller note is separately ordinary income each year and is not eligible for installment treatment.

Total expected proceeds across all components, assuming the earnout pays in full: $4.0M cash at close, $500K escrow release, $1.218M seller note repayment, $500K earnout, total $6.218M of nominal proceeds against $5.0M nominal purchase price (the extra $218K is interest income). Present value at an 8 percent discount rate is closer to $5.4M, reflecting the time value of waiting up to 5 years for full payment.

When Seller Financing Makes Sense and When to Avoid It

Seller financing is not a default position. It is a structural choice that should be made deliberately based on the specific business, the specific buyer, and the seller’s personal circumstances. The following framework separates the cases where seller financing creates value from the cases where it transfers risk without compensation.

When Seller Financing Adds Value

Seller financing makes sense when the business has strong and stable cash flows that can comfortably service both senior debt and the seller note. SBA underwriters typically require a debt service coverage ratio of 1.25x or higher on the consolidated debt stack, which means the business needs to generate 1.25 dollars of free cash flow for every dollar of total debt service. Stable cash flows make the seller note close to risk-free; volatile cash flows make it a real credit risk.

Seller financing also makes sense when the buyer is cash-constrained but otherwise qualified. A first-time operator with operating experience, industry knowledge, and 10 percent equity but no additional cash often makes a better long-term steward than a financial buyer with more cash but no operating intent. The seller note bridges the funding gap and the seller earns 8 to 10 percent interest on capital that would otherwise sit in a treasury account at 4 to 5 percent.

The Section 453 installment sale tax benefit is real. By spreading recognition of gain across the years of payment receipt, a seller in the top federal capital gains bracket plus state tax in California, New York, or Oregon can reduce effective tax rate by 2 to 5 percent through bracket-shifting and timing. This benefit alone can offset 30 to 50 percent of the present-value discount of waiting for payment.

Total consideration is often higher when the seller offers financing. SRS Acquiom 2025 data shows that deals with seller notes close at average multiples 5 to 8 percent higher than all-cash deals of comparable size and quality. Deals with earnouts close at average multiples 10 to 15 percent higher when both sides agree on a reasonable target. The premium reflects the buyer’s willingness to pay more when the seller absorbs some of the post-closing performance risk.

When to Avoid Seller Financing

Avoid seller financing when the buyer’s credit and operating capability are uncertain. A buyer who cannot pass SBA underwriting, who has limited industry experience, who has weak personal credit, or who is over-extended on existing debt is a buyer who is likely to default on the seller note. A defaulted seller note recovery typically takes 24 to 36 months of collection and litigation, with total recovery averaging 30 to 60 percent of note face value after legal fees per industry default-recovery data.

Avoid seller financing in industries facing structural decline or material instability. A 5-year seller note in a business with declining revenue, regulatory exposure, or technology disruption is a 5-year exposure to a deteriorating asset. The seller’s recovery in default is the collateral value of business assets, which is often a fraction of replacement cost.

Avoid seller financing when personal life-stage requires full cash at close. A seller paying for a child’s college tuition, funding a retirement income strategy, or making a large personal purchase (a new home, a healthcare expense) needs liquidity now. A 5-year seller note generates monthly income but does not solve a near-term cash need. Some sellers in this situation can sell the seller note in the secondary market at a discount (typically 70 to 85 cents on the dollar) to a specialty buyer, but this erodes the value of the note significantly.

Avoid seller financing when the buyer can fund 100 percent of the purchase price through a combination of SBA, senior debt, and personal equity. If the buyer has the capital stack to close without seller paper, requiring seller financing is a defensive demand from a buyer trying to share downside risk. Push back. Cash at close is always worth more than promised future payment.

Structuring Tips That Protect the Seller

Cap the Seller Note at 25 Percent of Purchase Price

The seller should not become the buyer’s primary financing source. A seller note larger than 25 percent of purchase price signals that the buyer lacks the equity and senior debt capacity to be the right owner of the business. Cap the seller note at 25 percent and push the buyer to find other sources for the rest.

Require a Personal Guarantee From the Buyer Principals

The seller note should always be personally guaranteed by the individuals controlling the buyer entity. Without a personal guarantee, the seller’s only recourse on default is the assets of the buyer entity, which may be insufficient or already encumbered by senior debt. A personal guarantee gives the seller recourse against the buyer’s personal assets, which typically motivates payment in ways an entity guarantee cannot.

Negotiate the Subordination Agreement Carefully

On any deal involving senior debt and a seller note, the senior lender will require a subordination agreement that places the seller note behind the senior debt in payment priority and lien priority. The standard subordination is 80/20: the senior lender has first lien on all assets and gets paid first; the seller has second lien and gets paid second. Sellers should accept payment subordination but resist standby clauses that prevent the seller from receiving any payment if the senior debt is current. Standby clauses convert the seller note from financing into a contingent obligation.

Build in Cross-Default Clauses

The seller note should include a cross-default clause that makes a default on the senior debt also a default on the seller note. This sounds counterintuitive (why accelerate the seller note if the senior is already in default?), but it gives the seller the ability to participate in workout negotiations, take action to preserve collateral value, and pursue remedies in parallel with the senior lender rather than waiting until senior resolves its claim.

File a UCC-1 on Business Assets

The seller’s lien on the business assets must be perfected through a UCC-1 financing statement filed with the appropriate state filing office. Without a perfected lien, the seller is an unsecured creditor and stands behind every other secured creditor in bankruptcy. The UCC-1 filing costs $25 to $100, takes 24 to 48 hours to perfect, and is the difference between a recoverable note and an uncollectible note.

Set Interest at a Risk-Adjusted Rate

Interest rate on the seller note should be set at prime plus 2 to 4 percent depending on the credit quality of the buyer. At June 2026 prime of approximately 7.5 percent, that is a seller note rate of 9.5 to 11.5 percent. Lower rates undercompensate the seller for risk and time. Higher rates may run afoul of the SBA’s restrictions on seller-note rates when the note is part of the SBA loan structure.

Include an Acceleration on Change of Control

The seller note should automatically accelerate to full immediate payment on a change of control of the buyer entity. If the buyer sells the business during the seller note term, the seller should be paid in full at that point. Without this clause, the buyer can sell the business to a third party who then assumes the seller note on potentially weaker credit, and the seller loses the ability to evaluate the new payer.

Preserve Audit Rights for 24 Months

The seller note agreement should grant the seller audit rights for the first 24 months after close, including the right to receive quarterly financial statements, the right to inspect books and records on reasonable notice, and the right to interview the controller. This is especially important if the seller note has any performance-based features or if the senior debt has covenants that the seller needs to monitor.

Timeline From LOI to Final Payment

Understanding the timeline helps the seller plan for cash flow and tax obligations. The phases of a typical sub-$10M deal with a mixed financing stack run as follows.

Phase 1: LOI to Signed Purchase Agreement, 30 to 60 Days. The buyer arranges senior financing pre-qualification (SBA pre-qual or bank term sheet), the seller engages tax and legal counsel, the deal terms get refined into a purchase agreement with seller-note term sheet, earnout schedule, and escrow terms. The seller should require the buyer to fund a refundable deposit of 1 to 2 percent of purchase price in escrow during this phase to signal commitment.

Phase 2: Due Diligence and Senior Loan Underwriting, 45 to 90 Days. The buyer’s lender underwrites both the buyer and the business, a third-party valuation is performed, quality of earnings analysis is completed, legal due diligence proceeds in parallel. The seller produces requested documents and answers diligence questions. This phase is where deals most commonly fall apart, usually because the SBA valuation comes in below the LOI price or because diligence uncovers an undisclosed liability.

Phase 3: Closing, 5 to 15 Days. Final loan documents are executed, the purchase agreement is signed, funds wire from senior lender to escrow agent, escrow agent disburses cash to seller, the seller note is executed and perfected via UCC-1 filing, and the escrow holdback is established. The seller walks away with the cash portion at close, typically 70 to 85 percent of total consideration.

Phase 4: Escrow Release, 12 to 24 Months. The escrow agent releases funds on the scheduled dates, less any verified indemnification claims. On most deals, the escrow releases substantially in full because the rep and warranty period passes without material claims.

Phase 5: Earnout Measurement, 12 to 36 Months. The buyer operates the business through the earnout period, prepares the earnout calculation, and pays the earnout (in part or in full) to the seller. This phase has the highest risk of dispute, which is why the dispute-resolution clause and audit rights matter so much.

Phase 6: Seller Note Amortization, 3 to 7 Years. The buyer makes monthly principal and interest payments on the seller note. The seller monitors the senior loan covenants and the business performance through the audit rights, and either receives full payment over the term or pursues remedies if the buyer defaults.

Common Mistakes Sellers Make

Treating the Seller Note as a Sunk Concession

Many sellers think of the seller note as a discount they had to accept to close. This framing leads to careless negotiation of the note terms. The seller note is real money at a real interest rate over a real term, and the terms matter as much as the headline amount. A $1M seller note at 5 percent for 7 years generates $190K of interest income. The same note at 9 percent for 5 years generates $245K of interest income with faster principal recovery. The terms are worth fighting for.

Accepting Standby Terms Without Compensation

SBA-financed deals often require a portion of the seller note to be on standby (no payments) for the first 24 months. Sellers frequently accept standby with no adjustment to the headline price. The time value of $1M at 8 percent over 24 months is approximately $160K. If the buyer wants standby treatment, the seller should ask for either a higher principal amount, a higher interest rate after standby ends, or a price adjustment elsewhere in the deal.

Skipping the Subordination Agreement Review

The subordination agreement is a separate document from the seller note and the purchase agreement, and it is often signed without seller legal review. The subordination agreement determines how and when the seller can act on a default, whether the seller can receive payments during a senior default, and what remedies the seller has against collateral. Sellers should require their legal counsel to review and negotiate the subordination agreement, not just the purchase agreement.

Accepting an Unsecured Note

Some buyers will push for an unsecured seller note, particularly on smaller deals. An unsecured seller note is functionally equivalent to a loan to a startup with no collateral. In a default scenario, the seller has no claim on business assets and stands behind every secured creditor. Always insist on a secured note with a perfected UCC-1, and resist any structure where the seller note is unsecured.

Ignoring the Tax Election Window

The Section 453 installment sale election (or election out of installment treatment) must be made in the tax year of the sale. Sellers who want to elect out of installment treatment (because they have offsetting losses, expect tax rates to rise, or want certainty) cannot make that decision in year two. Engage a tax advisor before signing the LOI, model both scenarios, and make the election decision before the year-end of the sale year.

Failing to Diligence the Buyer

Sellers spend months responding to buyer diligence and then sign a 5-year seller note to a buyer they have diligenced for one hour. The seller should require: a personal financial statement from the buyer principals, personal tax returns for the last 3 years, references from prior business operations, a credit report, and evidence of operating experience in the industry. The seller is making a 5-year credit decision and should diligence the buyer accordingly.

Frequently Asked Questions

What percentage of the purchase price should be seller-financed?

On sub-$5M SBA-financed deals, seller financing typically runs 10 to 25 percent of purchase price. On $5M to $25M deals with senior bank debt and PE equity, seller financing (including earnouts and rollover) often totals 20 to 40 percent of purchase price. The seller should cap the pure seller note at 25 percent of purchase price and resist structures where the seller note exceeds that threshold.

Can a seller note be sold to a third party?

Yes. A secondary market exists for performing seller notes, typically pricing notes at 70 to 85 percent of remaining principal depending on the term, the interest rate, the buyer credit quality, and the seller’s lien position. Selling the note converts the future payment stream into immediate cash but at a meaningful discount. Sellers in life-stage cash needs sometimes find this discount acceptable.

What happens to the seller note if the buyer files bankruptcy?

If the buyer files Chapter 11 reorganization, the seller note becomes a claim in the bankruptcy estate, secured to the extent of the collateral value and unsecured for any deficiency. If the buyer files Chapter 7 liquidation, the trustee liquidates business assets and distributes proceeds according to lien priority. The seller’s recovery depends on whether the UCC-1 is properly perfected, whether the senior lender is first-priority, and the actual collateral value. Industry data suggests recovery on a properly perfected second-lien seller note averages 30 to 60 percent of face value after fees.

How does the SBA treat seller notes in the 10 percent equity requirement?

Under SOP 50 57 2 (effective 2024), a seller note can count toward the buyer’s 10 percent equity requirement only if the note is on full standby (no principal or interest payments) for at least 24 months and the note term matches the SBA loan term. A standby seller note used for equity is effectively interest-free for the first 24 months, which is a meaningful price reduction in present-value terms.

Should the earnout be subordinate to the seller note?

This depends on the deal structure. In most deals, the earnout is treated as deferred purchase price and is not formally subordinated to the seller note because the earnout is not secured debt, it is a contractual contingent obligation. Both the seller note and the earnout sit behind senior debt. If the deal documents try to formally subordinate the earnout to the senior debt or to the seller note, the seller should resist that subordination, since the earnout is already at risk based on business performance.

What interest rate is reasonable on a seller note in 2026?

With June 2026 prime rate at approximately 7.5 percent per Federal Reserve H.15 release data, a reasonable seller-note rate runs prime plus 2 to 4 percent, or 9.5 to 11.5 percent. On SBA-eligible seller notes, the rate is capped at the SBA’s allowed seller-note rate, which is typically prime or prime plus a small margin. Sellers should not accept materially below-prime rates without an offsetting price adjustment.

How CT Acquisitions Approaches This

CT Acquisitions advises sellers on stack structuring as part of every engagement under $25M. Because we are buyer-paid, the seller pays us nothing and we work directly for the seller’s outcome. Our typical seller engagement includes a pre-LOI stack design review that models the after-tax present value of multiple stack structures, a buyer diligence package that documents the buyer’s financing capacity and credit, and term-sheet negotiation support on the seller note, earnout, and escrow.

The most common pattern we see is sellers who agree to too much seller financing without negotiating the protective terms. The fix is straightforward: cap the seller note at 25 percent, require personal guarantees, file the UCC-1, include cross-default and acceleration clauses, and preserve audit rights. When these protections are in place, seller financing is a useful tool. When they are missing, seller financing is a slow-motion default.

What to Do Next

If a buyer has proposed a financing stack and you want a second set of eyes on the structure, book a free consultation. We will review the seller note terms, the earnout metric and covenants, the escrow holdback, and the subordination agreement, and we will tell you which pieces add value and which pieces transfer risk without compensation. The review is free because the buyer pays us, not you.

Related guides: How to Negotiate an Earnout, Reducing Tax Liability on a Business Sale, Deferring Tax on a Business Sale.