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Glossary

What is Seller Note (Seller Financing)?

Also called: seller financing, seller carry, owner financing, vendor take-back

In one sentence: A loan from the seller to the buyer for part of the purchase price, repaid over time under a written promissory note and usually subordinate to the bank loan.

Last updated · Precise SBA editorial

In plain English

With a seller note, the seller accepts part of the price over time instead of in cash at closing. You sign a promissory note and pay it back with interest. In a deal with a bank loan, the seller note is usually subordinate: the bank is paid first if something goes wrong.

Standby versus paying

In an SBA-financed purchase, the key question is whether the note pays while the SBA loan is outstanding:

  • Paying note. Regular payments add to the business’s debt service, and the note counts toward the cap that limits total purchase debt to the business valuation.
  • Full standby note. No principal or interest payments for the term of the SBA loan, though interest may accrue. It may count as equity, within limits. See standby seller note.

Hypothetical example

A business sells for $900,000. The bank lends $720,000, the buyer brings $90,000, and the seller carries $90,000 over five years with payments of about $20,000 a year. Those payments are part of debt service from day one. If the seller instead agreed to full standby, the payments would drop out of debt service, and the note might count toward part of the equity.

Common mix-ups

  • Seller financing is not an earnout. A note is a fixed amount owed; an earnout depends on performance.
  • Subordinate doesn’t mean optional. You still owe the seller under the note’s terms.

What to do with it

Decide early whether a note will be standby or paying, and compare the full structures in SBA vs. conventional vs. seller financing.

Common questions

Is seller financing common in small business sales?

Yes. Many small-business purchases include a seller note, either alone or alongside a bank loan. It helps bridge price gaps and keeps the seller invested in the transition.

Can a seller note count as my down payment in an SBA deal?

Only if it's on full standby: no principal or interest payments for the term of the SBA loan. Then it may count toward the equity injection, but together with other limited sources it can provide no more than half of the required amount.

Can I refinance a seller note later with an SBA loan?

Under the current rules, a seller note from a change of ownership can be refinanced only after it has been in place and current, not on standby, for 36 months, and the refinancing has to meet other SBA conditions.

Related terms

Standby Seller NoteSeller financing in which the seller agrees not to be paid for a set period and ranks behind the bank loan, so it does not draw on the buyer’s cash flow.Equity InjectionThe portion of a project paid with the buyer’s own money, in addition to the loan, which lenders require and expect to be documented.EarnoutPart of a business's purchase price that the buyer pays the seller later, only if the business meets agreed performance targets after closing.

Go deeper

SBA vs. Conventional vs. Seller Financing to Buy a BusinessMost acquisitions are financed with some mix of a bank loan and seller financing, and the bank loan may or may not carry an SBA guaranty. Here's how the three compare, and why the right answer is often a combination.Equity Injection and Seller Notes in an SBA Business PurchaseTwo ideas drive the cash side of most acquisitions: how much of your own money goes in, and how the seller's financing is treated. The details changed with SOP 50 10 8.1, so confirm them before you negotiate.

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General information, not legal, tax or financial advice. Precise SBA is not affiliated with the U.S. Small Business Administration. Rules and lender policies change. Examples use hypothetical numbers. We never charge you. If a loan closes, the lender may pay us a referral fee, disclosed on SBA Form 159 (how we get paid). Back to the glossary.