Carrying a note, and the rules that now apply

The short version

• Carrying a note means letting the buyer pay part of the price over time, with interest.
• It can help a buyer afford the business and help you get the price you want.
• It also means you are lending money to the buyer, and you get paid only if the business does well.
• If the buyer uses an SBA loan, the bank is paid first, and rules effective October 1, 2026 limit how your note can be used and when you can be paid.
• Protect yourself with clear written terms, a personal guarantee from the buyer and advice from your M&A attorney.

What a seller note is

A seller note, also called seller financing, is a loan you make to the buyer for part of the price. Instead of receiving everything at closing, you receive payments over time, with interest.

For example, on a $1,000,000 sale, you might receive $900,000 at closing and a $100,000 note, paid over several years.

Why buyers ask for one

• It lowers the cash they need at closing.
• It shows them you believe in the business.
• Lenders often see a seller note as a sign of confidence.

The risk to you

A note is a loan to someone else's business. If the business struggles after you leave, payments can slow or stop. You may have to take legal action to collect.

If the buyer also has a bank loan, the bank is almost always paid first. Your note sits behind it.

The SBA rules

If your buyer uses an SBA loan, rules effective October 1, 2026 (SOP 50 10 8.1) apply to your note:

• The bank comes first. Your note is subordinate to the SBA loan.
• Counting toward the buyer's share. Buyers must put in at least 10 percent of the total cost of the purchase. A note from you can count toward that only if you receive no payments at all for the life of the SBA loan, which is called full standby. Even then, it can cover no more than half of the buyer's required share.
• Other notes. A note that does not count toward the buyer's share may allow payments, if the lender approves the terms.

Full standby can mean waiting up to ten years to be paid, or longer if real estate is part of the loan. Interest can build up on the note during that time and be paid once the SBA loan is repaid. Know which kind of note you are agreeing to.

Protecting yourself

Your M&A attorney can build protections into the note:

• Interest rate and payment schedule in writing.
• A personal guarantee from the buyer.
• Security, such as a claim on business assets behind the bank.
• What happens if payments stop, including your right to act.
• Regular financial reports from the business.

With an SBA loan, the lender's rules may limit some of these. Ask before you agree.