Seller note

Why it matters in a senior care sale

The seller becomes a creditor as well as a former owner. The purchase may close while a large part of the proceeds remains exposed to the buyer's future cash flow. Assess who owes the money, what supports repayment and which rights survive the sale. Familiarity with the agency or facility is only part of that review.

A seller-financing discussion should separate credit risk from the negotiated business price. Adding interest does not make a weak borrower stronger. Review the operating plan after the buyer pays for needed management, staffing, premises and other debts.

Which terms should the reader identify?

Principal is the amount borrowed. Interest is the charge for that debt. Amortization describes scheduled principal reduction, while maturity is the final due date. If the balance is not fully repaid through earlier payments, a balloon remains. Ask about payment timing, default notices, any cure period and permitted offsets.

Security and guarantees require their own documents and review. A senior lender may restrict the seller's payments or remedies. SBA's currently linked Form 155 illustrates these restrictions; its options do not by themselves establish what a given SBA loan permits. Counsel should read the actual signed arrangement. (Source: SBA)

Identify any contractual right to deduct a disputed purchase obligation from scheduled payments. Ask whether a claim requires notice, agreement or a final determination before deduction, and how undisputed installments are handled. The reporting schedule should distinguish principal, interest, permitted adjustments and the remaining balance so the parties can reconcile each payment.

The seller note administration guide follows three fictional payments through interest and principal. A partial payment leaves a balance difference larger than the cash shortfall. Use the actual agreement before treating a ledger difference as a legal demand.

A fictional interest-only example

Assume a $150,000 note at 6% simple annual interest, paid monthly, with principal due after 24 months. The interest is $750 each month: $150,000 times 6% divided by 12. After 24 payments, the seller has received $18,000 in interest and the full $150,000 principal remains due.

These terms illustrate arithmetic, not a market rate, eligible SBA structure or actual sale. No fees, default, late payment or compounding is assumed. A buyer's plan to refinance the principal requires its own support. The seller should not budget the final payment as certain cash merely because earlier interest was paid.

How does it differ from other deferred amounts?

An earn-out depends on a stated future condition. An escrow holdback concerns money withheld under release rules. Neither term should be substituted for the note's actual debt terms. One purchase can use all three, which makes a clear cash schedule more useful.

Use the LOI guide to record the proposed breakdown. Keep the buyer's working-capital needs separate from the seller's expected receipts. For a confidential review, bring the proposed terms and a list of what still needs evidence.

The seller-financing FAQ example reconciles scheduled principal with the amount still due at maturity. Interest is separate. A small monthly figure can leave a much larger final cash need that the parties still have to fund.