What is Seller Financing Note?

What it is

A promissory note from the buyer to the seller for part of the purchase price, typically 10% to 25% on SBA-backed acquisition deals. Per SBA SOP 50 10 8 (effective June 1, 2025), seller notes that count toward the buyer's required equity injection must be on full standby (no principal, no interest payments) for the entire life of the SBA loan, and can satisfy at most 50% of the equity injection.

Why it matters in your deal

For self-funded ETA buyers and acquisition counsel, seller financing note matters because it can change economics, leverage, closing certainty, post-close exposure, or the attorney questions that need to be answered before capital is committed. Risk signal: High. Note terms can erase the financial flexibility seller financing was supposed to provide.

Real example

A self-funded ETA buyers and acquisition counsel can see seller financing note language that looks routine until it controls leverage, money, timing, remedies, or closing risk. The practical question is not just what the clause says, but what it lets the other side do when the deal becomes stressed.

Red flags to watch

• •One-sided language that gives the other party discretion while limiting your consent, notice, cure, or remedy rights.
• •Undefined dollar caps, timing rules, notice methods, survival periods, territory, or trigger conditions.
• •Cross-references that move the real obligation into an exhibit, schedule, FDD item, lease addendum, or outside policy.
• •Terms that conflict with the self-funded ETA buyers and acquisition counsel diligence plan, financing assumptions, operating model, or counsel review checklist.

What to do

1. 1Quote the operative seller financing note language and send the full surrounding section to counsel.
2. 2Tie the clause to economics, timing, remedies, assignment rights, consent requirements, and any closing condition it affects.
3. 3Ask for revisions that replace discretion with objective standards, defined notice periods, measurable caps, and clear cure rights.
4. 4Confirm the governing law, jurisdiction, and document cross-references before relying on the clause in negotiation.

Sources

1. SBA SOP 50 10 - Lender and Development Company Loan Programs
2. Cornell Legal Information Institute - UCC Article 9
3. Cornell Legal Information Institute - secured transactions