The short version
- Most deals under about five million dollars use cash, an SBA loan, a seller note or a mix
- A seller note is often ten to twenty five percent of the price
- SBA lenders usually cap debt near three times adjusted cash flow
- Seller financing can close faster than a deal that waits on the bank
The Three Common Paths
Under about five million dollars, buyers pay with their own cash, a bank loan backed by the SBA, seller financing or some combination. Bigger deals bring in other lenders and sometimes private equity.
SBA Loans
An SBA loan is really two deals: one between buyer and seller and one between buyer and bank. Both must close together.
Lenders often limit borrowing to about three times adjusted cash flow, so an SBA buyer typically affords a multiple of four or less once their own cash is added. Higher multiples need more buyer equity.
SBA loans often do not pencil below about three hundred thousand dollars, so very small deals lean on seller notes.
The loan cap is set by Congress. Do not promise a seller a bigger loan than the rules allow.
Many SBA deals take nine to twelve months, and fourth quarter is the busiest time for bank closings.
Seller Financing
With a seller note, you accept part of the price over time, usually secured by a lien on the assets. A common share is ten to twenty five percent. It widens the buyer pool, and it can shorten the road to closing to about six months.
The risk is yours if the buyer struggles. Ask what protects the note, and talk to an attorney before you agree.
Cash Free, Debt Free
The usual starting point is that you pay off business debt at closing and keep cash on hand. Lenders may want working capital left in the company. If the buyer has to fund it instead, the effective price goes up.
Earnouts and Transition Roles
When a deal carries transfer risk, such as one big customer, the structure can bridge it. You might stay on as a minority partner for a while.
Or part of the price may depend on keeping key accounts. That shifts risk back to you, though it can make a risky deal fundable.
Questions to Ask a Buyer
Before you give a buyer your time, ask for proof of funds or a lender letter, not a promise. Watch for a buyer who says an SBA loan is coming but has not started one, or who pivots late to a seller note.
Tax Effects
Installment payments can spread capital gains across the years you receive them. Confirm with a CPA, and see asset allocation for how the price is split.
For earnings terms, read the owner benefit explainer. Then request a valuation.