Seller note

The seller note (vendor financing) is the portion of the sale price that the buyer pays over time as debt to the seller: principal plus interest over an agreed term. It is a fixed obligation, not contingent: the buyer must pay regardless of how the business performs. It reduces the cash and external debt required at closing; the seller takes the buyer’s credit risk. In Mexican SME deals it often represents 30% to 55% of enterprise value, with terms of 2 to 5 years and rates between 10% and 14% per year.

Why does the buyer propose a seller note?

To reduce the cash and external debt required at closing. When the buyer has limited equity or bank credit, it asks the seller to finance part of the price: the seller becomes a creditor. A note that represents a large share of enterprise value signals that the buyer cannot or will not pay everything at closing. The seller should evaluate whether the rate compensates for credit risk and whether term and guarantees are acceptable.

What structure and ranges are typical in Mexico?

In Mexican SME transactions the note often represents 30% to 55% of enterprise value, with terms of 2 to 5 years and rates between 10% and 14% per year. Payments can be amortizing (installments including principal and interest) or bullet (periodic interest and principal at maturity). The LOI and definitive agreement set principal, rate, term, payment schedule, and any guarantees or subordination. To model scenarios: the seller note calculator and the seller note in Mexico guide.

How does it differ from contingent consideration (earn-out)?

The seller note is a fixed obligation: the buyer must pay principal and interest per the contract regardless of business performance. Earn-out is contingent: paid only if conditions are met (EBITDA targets, client retention, etc.). The same deal often includes both: the note covers the stable deferred tranche; earn-out covers the performance-linked tranche. More in earn-out and consideration structure.

What do buyers and sellers ask?

Why does the buyer propose a seller note?

To reduce cash and external debt at closing: part of the price is financed by the seller. A buyer proposing a large note signals limited equity or bank financing. The seller should evaluate interest rate, term, prepayment rights, guarantees or collateral, and the buyer’s risk profile before accepting.

How does the seller note differ from earn-out?

The seller note is debt: the buyer must pay principal and interest regardless of business performance. Earn-out (contingent consideration) is paid only if post-closing conditions are met. The note is a fixed obligation; earn-out is variable. The same deal often includes both: the note for the stable deferred tranche, earn-out for the performance-linked tranche.

What should the seller negotiate in the note?

Interest rate versus alternatives, term and amortization profile (bullet vs amortizing), prepayment rights, guarantees or collateral, subordination to bank debt, and default provisions. What isn’t fixed in the LOI is negotiated later with less leverage for the seller. The seller note in Mexico guide and the calculator help size flows and scenarios.