DEAL STRUCTURE
Seller notes: getting paid over time
A seller note is part of the purchase price that you lend to the buyer and are repaid over time with interest. In lower middle-market survey data reported in 2025, the average $25 million to $50 million deal was about 70 percent cash, 10 percent seller note, 15 percent rollover equity, and 5 percent escrow. A seller note can make a deal possible or raise the headline price, but it is unsecured credit to the buyer, usually behind its bank, so the terms deserve as much attention as the amount.
By Akim Guennani, Founder · Updated October 2026
~10%
Seller note share of the average $25M to $50M deal
~70%
Cash at closing in the same average deal
~15%
Rollover equity in the same average deal
How a seller note works
At closing you receive cash for most of the price and a promissory note for the rest. The note sets the interest rate, the repayment schedule, and what happens if the buyer misses a payment. Notes commonly run a few years, and some defer principal until the end.
Because buyers usually also borrow from a bank, the bank will require your note to be subordinated: the bank is repaid first, and it may be able to block payments to you if the buyer's loan covenants are breached.
Terms that protect you
If a seller note is part of the deal, negotiate these points.
- Guarantee
- A guarantee from the buyer's parent company, not just the operating company you sold.
- Interest
- A market rate that compensates you for being behind the bank.
- Payment blocks
- Limits on how long the senior lender can stop payments to you.
- Acceleration
- Full repayment if the business is sold again or the buyer defaults.
- Offset rights
- Limits on the buyer's ability to reduce note payments for indemnity claims.
Seller notes vs. earnouts
A seller note is a fixed obligation: the buyer owes it whether or not the business hits targets. An earnout is contingent on performance. If a buyer offers you either, a note is usually the more reliable way to receive deferred value, as long as the buyer is creditworthy.
Where seller notes fit in a deal
Survey data from the Alliance of Mergers & Acquisitions Advisors, reported in 2025, describes the average $25 million to $50 million lower middle-market deal as roughly 70 percent cash, 10 percent seller note, 15 percent rollover equity, and 5 percent escrow. Many home care and behavioral health practice sales are smaller than that, and smaller deals often lean more on deferred payments.
A seller note may also allow you to report part of your gain under the installment method, paying tax as you receive principal rather than all at closing. The IRS explains installment sale rules in Topic 705; your tax adviser should confirm how they apply.
Illustrative example: cash now vs. later
On a $12,000,000 sale structured like the survey average, you would receive about $8,400,000 in cash at closing, hold a $1,200,000 seller note, roll $1,800,000 into the buyer, and have $600,000 in escrow. The note might pay interest annually with principal due at the end of year three. The figures are hypothetical.
Seller note checklist
Before accepting a note, confirm each of these in the documents.
Owner checklist
- Who issues and who guarantees the note
- Interest rate and payment schedule
- Subordination terms and limits on payment blocks
- Acceleration on a resale or default
- Limits on offsets for indemnity claims
- Tax treatment under the installment method
How Lartico fits in
Comparing several buyers shows you which ones can pay more at closing and which rely on seller financing. Lartico introduces you to multiple qualified buyers so you can weigh cash, notes, and equity side by side.
Sources and methodology
Public transactions provide market context, not a valuation quote for a private practice. Illustrative examples use hypothetical assumptions and are not predictions. This guide is educational and is not legal, tax, accounting, or investment advice.
- 1. Lower middle market M&A deal structure: what the latest survey data reveals (Lippes Mathias, citing AM&AA). Average deal structure for $25M to $50M transactions.
- 2. Topic no. 705, Installment sales (Internal Revenue Service). How installment sale reporting works.
Reviewed October 2026
Questions owners ask
Straight answers, before you commit to anything.
How big is a typical seller note?+
In lower middle-market survey data reported in 2025, the average $25 million to $50 million deal included a seller note of about 10 percent of the price.
What happens if the buyer can't pay my seller note?+
You become a creditor, usually behind the buyer's bank. That is why guarantees, acceleration, and limits on payment blocks matter.
How is a seller note taxed?+
A seller note may allow installment sale treatment, spreading gain over the years you receive payments. Your tax adviser should confirm how it applies to your deal.
Is a seller note better than an earnout?+
Usually, because it is a fixed obligation rather than one that depends on performance, provided the buyer is creditworthy.
Related resources
Home care
Behavioral health
Keep reading
Earnouts
How earnouts work when you sell a home care agency or behavioral health practice, how often healthcare deals use them, how much actually gets paid, and terms to negotiate.
Rollover equity guide
What rollover equity is, how it works when you sell a home care agency or behavioral health practice, typical rollover percentages, a worked example, tax basics, and terms to negotiate.
Types of acquisitions
The deal structures available to healthcare practice owners: full sale, recapitalization, growth partnership, and how rollover equity creates a second payday.
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