The buyer is pushing for us to carry thirty percent of the purchase price via a seller note, but they are offering a below-market interest rate that does not compensate us for the risk of being a junior lender. How do we renegotiate the interest rate and payment terms to reflect our true risk profile?

Question

Tyler Smith · Accepted Answer

Carrying a seller note means you are acting as a bank without a bank's scale of diversified risk. If a buyer demands a below-market rate, you must push back using market-rate debt comparisons or structure the note with a payment-in-kind toggle. If they cannot pay a market interest rate in cash, the unpaid interest should compound and accrue to the principal balance of the note, increasing your ultimate payout.

Additionally, negotiate for a conversion feature where unpaid interest or principal can convert into senior equity in the parent company, giving you upside. You should also demand board observer rights or access to their monthly financial scorecard. In our EOS practice, we track weekly metrics. If the buyer is not hitting their targets, you need to see that smoke before the fire starts. Insist on receiving their weekly scorecard so you can monitor the health of the business while your capital is still on the line. Protect your position by including covenants that trigger a default if key team members leave or if the buyer fails to execute the transition plan. Your seller note should be a tool that facilitates the deal, not a massive uncompensated risk.