Deal StructureFinance
Seller Note
Also known as: Seller financing, vendor note, promissory note
A portion of the purchase price that the seller effectively lends to the buyer, paid back over time with interest. Shifts risk to the seller because the buyer could default.
WHY IT MATTERS
A seller note means the seller is partly financing their own exit. Instead of getting all cash at closing, the seller receives a promissory note — the buyer will pay $X over Y years at Z% interest. This is typically used to bridge valuation gaps or because the buyer wants to preserve cash. The risk to the seller is real: if the business deteriorates under new ownership, the buyer may default on the note. Worse, if the note is structured through a controlled entity, the seller may have almost no enforcement rights. Simple (non-compounding) interest and weak covenants further reduce the buyer's urgency to pay.