Sell Your Business Faster With 95% Upfront Cash and 5% Standby Note

Sell Your Business Faster With 95% Upfront Cash and 5% Standby Note

Selling your small business or franchise—whether it’s a thriving retail shop, a service-based operation, or a full-service restaurant—is a monumental decision. You want to maximize your proceeds, close the deal quickly, and ensure a smooth transition. But what if you could sweeten the deal for buyers, secure 95% of the purchase price in cash upfront, and still earn interest on the remaining 5% over 10 years? Enter the seller note, a powerful tool in SBA-backed business sales that can make your exit both lucrative and seamless.

If your buyer will be using an SBA backed loan to finance the purchase of your business then the SBA new rules outlined in the SBA’s Standard Operating Procedures (SOP 50 10 8, effective June 1, 2025), then a seller note allows you to finance a portion of the buyer’s required equity injection for an SBA 7(a) loan, boosting their ability to close the deal while providing you with significant immediate cash and a low-risk, annuity-like payout.

What Is a Seller Note in an SBA Loan Equity Injection?

A seller note is a promissory note you provide to the buyer, financing a small portion of the purchase price as part of their 10% equity injection required for an SBA 7(a) loan. This note reduces the buyer’s upfront cash needs, making your business more accessible to qualified buyers. From your side, it’s a structured way to receive the lion’s share of the sale proceeds immediately while deferring a modest amount with interest over a 10-year period.

Here’s the breakdown:

  • Upfront Cash: You receive 95% of the purchase price (up to the SBA-approved business valuation) in cash at closing, funded by the SBA loan and the buyer’s cash contribution.

  • Standby Note: The remaining 5% is covered by a 10-year standby note, on which you receive no principal or interest payments during the SBA loan term (typically 10 years). At the end, the buyer pays the principal plus accrued interest (e.g., 7%) in a lump sum.

  • Subordinated Lien: You retain a subordinated lien on the business assets, behind the lender’s first lien, giving you a legal claim if the buyer defaults (though secondary to the lender’s claim).

  • Example: You sell your business for $1 million (SBA-approved valuation). The buyer needs a $100,000 equity injection (10% of project costs, including purchase price, fees, and working capital). You provide a $50,000 standby note (5% of the price) at 7% simple interest. At closing, you pocket $950,000 in cash. In 10 years, you collect $85,000 ($50,000 principal + $35,000 interest).

This structure isn’t as daunting as it might sound—it’s like setting up an annuity with a massive upfront payout, all while helping the buyer secure financing and giving lenders the sense of a long-term buy-in even if it’s only 5% of the price.

The Seller’s Payoff: Why Offer a Seller Note?

Being willing to offer an equity injection standby seller note is a strategic move that maximizes your sale proceeds, attracts more buyers, and provides future financial benefits.

1. Pocket 95% of the Sale Price Upfront: With a seller note, you receive 95% of the purchase price (up to the SBA-approved valuation) in cash at closing. This substantial payment gives you immediate liquidity to retire debt, invest in new opportunities, or enjoy your next chapter. For a $1 million sale, that’s $950,000 in your bank account right away.

2. Earn 7% Interest as a Long-Term Annuity: The 5% standby note accrues 7% (this is a typical rate but can be negotiated between buyer and seller) simple interest over 10 years, creating a passive income stream payable in a lump sum at maturity. Think of it as an annuity: you defer a small portion of the sale price but earn a healthy return for your patience. For a $50,000 note, you’ll collect $35,000 in interest after 10 years, boosting your total payout to $85,000. This steady, predictable return can complement your retirement or investment plans.

3. Secure Your Position with a Subordinated Lien: Your seller note comes with a subordinated lien on the business assets, providing a layer of security. While your claim is secondary to the SBA lender’s first lien, it ensures you have a legal stake in the business if the buyer defaults and assets are sold. This reduces your risk, as both the buyer and lender are incentivized to keep the business thriving.

4. Attract More Buyers and Close Faster: Many qualified buyers have strong cash flow but limited liquid cash for the full 10% equity injection. By offering a seller note, you cut their cash requirement in half (e.g., from $100,000 to $50,000 for a $1 million deal), making your business more accessible. This can attract more offers, increase competition, and speed up the sale, ensuring you close at your desired price without delays.

5. Boost Buyer and Lender Confidence: Your willingness to finance 5% of the sale signals confidence in the business’s future success. Lenders view this as “skin in the game” for both you and the buyer, aligning everyone’s interests. It strengthens the buyer’s loan application, increasing approval odds, and reduces default risk by preserving their liquidity for operations and loan payments.

How Does the Seller Note Impact the Buyer?

From the buyer’s perspective, your seller note is a lifeline that makes the deal feasible:

  • Lower Cash Burden: The buyer only needs to provide 5% of the equity injection in cash (e.g., $50,000 instead of $100,000 for a $1 million deal). This preserves their liquidity for working capital, marketing, or unexpected expenses, ensuring they can hit the ground running.

  • No Immediate Payments: Since the note is on full standby, the buyer makes no payments to you during the 10-year SBA loan term, freeing up cash flow to focus on loan repayment and business growth.

  • Stronger Loan Application: Your note demonstrates long-term commitment, making lenders more comfortable approving the loan. It shows you believe in the buyer’s ability to succeed, reducing perceived risk.

Why Lenders Love Seller Notes

Lenders see your seller note as a positive signal that strengthens the deal’s structure:

  • Long-Term Alignment: By deferring 5% of the purchase price for 10 years, you show faith in the business’s viability, aligning your interests with the buyer’s and lender’s.

  • Reduced Default Risk: The note lowers the buyer’s upfront cash needs, ensuring they have sufficient liquidity to manage the business and make loan payments, reducing the likelihood of default.

  • Subordinated Security: Your lien is subordinated to the SBA lender’s first lien, guaranteeing their priority in default scenarios. This aligns with SBA requirements, making the loan more attractive to lenders.

Key Considerations for Sellers

While a seller note offers compelling benefits, it’s important to weigh a few factors to ensure it fits your goals:

  • Deferred Payment: You won’t receive the 5% note amount or interest until the 10-year term ends. For a $50,000 note, that’s a $85,000 payout in a decade. Ensure you’re comfortable with this delay, knowing the 7% interest compensates for the wait.

  • Subordinated Risk: Your lien is secondary to the SBA lender’s, meaning they’re paid first if the buyer defaults and assets are sold. However, the buyer’s and lender’s incentives to succeed, plus your due diligence in selecting a qualified buyer, minimize this risk.

  • Valuation Cap: The purchase price, including your note, is capped at the SBA-approved independent business valuation. This ensures the deal is fair but may limit the total price if your asking price exceeds the valuation. Typically the difference between purchase price and valuation is through an additional seller note if the buyer is still willing to pay the purchase price.

For Smart Acquisition Loans, Think Inside the Box

At LoanBox, we specialize in guiding sellers through SBA-backed business sales, ensuring deals are structured to maximize your benefits while meeting SBA standards. Our lending platform and expert advisors simplify the process. Start with LoanBox to get pre-qualified, connect with lenders or consult our advisors. LoanBox is your trusted partner in navigating the funding of your small business or franchise. Just log in, answer questionnaires, complete your loan package, and the platform will match you to the exact right lenders you match 100% of dozens of criteria points. Select which lenders you want to access your loan package and offer a loan proposal. Receive loan proposals from interested lenders, select the winning lender, and always know what’s going on from application to funding and what’s needed next in the loan process. Or have a friendly LoanBox Advisor just handle everything for you.

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