October 3, 2025

Seller Notes Deep Dive | LoL #15

Shane Pierson, Stephanie Dunn & Brian Congelliere

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Seller Notes Deep Dive — Key Takeaways & Deep Dive

Seller financing has been a fixture of small business acquisitions for decades, but it has mostly stayed in the drawer — informal, poorly structured, and disconnected from any secondary market. In Episode 15 of Lords of Lending, Shane Pearson, Stephanie Dunn, and Brian Congelliere sit down with Abby Shemesh of Seller Edge Capital to examine what happens when you bring Wall Street-grade liquidity to Main Street seller notes.

In this episode: Abby Shemesh, whose background spans residential and commercial mortgage origination and secondary markets dating back to the pre-2008 Bear Stearns era, explains how Seller Edge Capital is building a marketplace for seller notes that could reshape how deals get done. The conversation covers the mechanics of buying existing seller notes at a discount, the specific contract language that makes or kills a deal, the psychology of sellers who refuse to carry financing because they fear never seeing their money, and how SBA lenders and seller note buyers can work together to create exit strategies that benefit everyone in the transaction.

Key Takeaways

1. Liquidity Changes Seller Psychology — And That Changes Everything

I think this is the most important point from the entire conversation. When a business owner considers seller financing, the knee-jerk reaction for nearly half of them is "no." According to data Shane referenced during the episode, 44% of sellers say they will not offer seller financing, and 32% are unsure. That leaves only 22% willing to carry a note.

But Abby's argument is that the 44% who say no are not making an informed decision. They are responding to a fear — the fear of being trapped as the bank on a deal for years while the buyer may or may not run the business into the ground. Remove that fear by showing them a path to liquidity — a way to sell the note and get cash within months, not years — and a meaningful percentage of that 44% moves into the "maybe" or "yes" column.

"I argue that the 44% that say no are also uneducated to a certain extent. That's just low hanging fruit. A knee jerk reaction — 'Oh, I don't get my money now, I don't even want to hear about it.' Well, Mr. or Mrs. Business Seller, guess what? We can do X, Y, and Z." — Abby Shemesh, Lords of Lending Episode #15

This is not a theoretical concept. Abby described real scenarios where sellers who initially said "I don't want seller financing" changed their position once they understood that their note could be sold on the secondary market. The seller still gets out. The buyer still gets their deal done. And a new investor steps in to hold the note for the remaining term. When all is said and done, liquidity turns seller financing from a burden into a bridge.

Steph offered the lender's perspective on why this matters so much right now. She has seen deal after deal fall apart because there is a gap between what the SBA can fund and what the seller is asking. Buyers rarely have mountains of cash sitting around for a traditional down payment. Sellers do not want to carry a note forever. The result? Deals die on the table. If even a fraction of those dead deals could be resurrected by telling the seller "you can carry this note for six months and then sell it for cash," the volume of closed transactions goes up significantly.

Shane added the analogy that ties it together. Think of it like real estate. You write a mortgage, the bank sells it on the secondary market, and a different entity services it. The borrower does not care who holds the paper as long as the terms do not change. The same principle applies here — the seller writes the note, collects payments for a period, and then sells the note to someone like Seller Edge for a lump sum. Everyone gets what they want.

2. Three Contract Elements Determine Whether a Seller Note Is Buyable

Brian, drawing on his attorney background, asked one of the sharpest questions of the episode: if a seller wanted to make their note attractive for secondary market sale, what are the simple, non-negotiable elements they need to include?

Abby's answer was precise. Three things:

No offset language (or very limited offset language). Offset rights allow a buyer to stop making payments if they discover that the seller left behind unpaid vendor debts or other liabilities. From an underwriting perspective, that is a deal killer. If a buyer can unilaterally stop paying for four months because they claim they found $20,000 in old vendor bills, the note becomes non-performing. Abby's recommendation: if offset language must exist, put an expiration on it and require the seller to step up and pay disputed amounts.

Personal guarantee. If the buying entity is an LLC or corporation, the note needs a personal guarantee from the individual behind it. For individual buyers, this is built in. But for entity purchases, a missing personal guarantee means Seller Edge has no recourse against the actual human being responsible for payments.

Financial reporting rights. The contract should allow the seller (or note holder) to request financial statements from the buyer 2-4 times per year. Without this language, the note holder has no visibility into whether the buyer is running the business profitably or driving it into the ground.

"No offset language or very little offset language, personal guarantee if it's an entity, and language that allows the seller to request financials of a borrower 2 to 4 times a year. Those are the three immediate things." — Abby Shemesh, Lords of Lending Episode #15

Brian also flagged lease terms as a secondary concern. If the loan has a 60-month amortization but the business lease expires in four months with no renewal option, that creates a serious risk for any note buyer. A brick-and-mortar business without a place to operate is a note that will not get paid.

Abby noted that the biggest problem in the current market is not bad businesses — it is bad paperwork. Many seller notes are drafted by local attorneys who have never thought about secondary market salability. Some notes have 240-month amortization schedules on a small business (a structure Abby called a "poor quality decision"). Others have wide-open offset provisions that essentially let the buyer stop paying whenever they feel like it. The good news is that these problems are fixable. A broker or attorney who understands what note buyers want can structure the deal correctly from day one, and Seller Edge is actively building a templated document package to make that process easier.

Steph pushed back on one point that revealed her lender's instincts. She asked Abby directly: "Why would I want to buy some mediocre bank's poorly executed seller-buyer transaction from some rural area with two mediocre attorneys?" It was a fair challenge. Abby's response was straightforward — if the price is right and the business is cash-flowing, there is value in the asset regardless of how elegantly the paperwork was drafted. Seller Edge's underwriting process evaluates the actual performance of the business, not just the polish of the legal documents.

3. Seasoning and SBA Compatibility Create a Natural Exit Ramp

One of the most practical insights from this episode is the relationship between seller note seasoning and SBA refinancing. Shane laid out the mechanics clearly: SBA lenders require 24 months of payment history on existing debt before they can refinance it. That creates a natural timeline for seller note investors.

Here is how it works in practice. A buyer acquires a business with seller financing. Seller Edge purchases the note from the seller after 6-12 months of payment history, buying at a discount that builds in their return from day one. The note continues performing for another 12-18 months. Once the 24-month seasoning mark is reached, the buyer becomes eligible for SBA refinancing. The SBA loan pays off the seller note, Seller Edge gets their exit, the buyer gets a longer-term loan with better structure, and an SBA lender picks up a new client with a proven payment track record.

"Once that two year period has crossed from when that origination happened, enter SBA. Which also creates an interesting opportunity — now if you know you've got an exit on the tail end in 18 months, you can write your acquisition terms in a way that allows you to know your investor is going to get this much return by the end of that period." — Shane Pearson, Lords of Lending Episode #15

Steph added an important counterpoint from the default data side. The average business default happens around year 5 or 6. That means the sweet spot for a note investor is getting in after the riskiest transition period (months 1-12) and getting out before the statistical danger zone. A 3-5 year investment horizon, which is exactly what Abby described as Seller Edge's target, lines up with both the SBA seasoning requirement and the default curve.

This creates a genuine supply chain: business brokers structure the deal, the seller gets liquidity, the note buyer manages the middle period, and the SBA lender provides the long-term exit. Every party has a defined role and a clear incentive.

Abby also described the two ways Seller Edge purchases notes. A full purchase is exactly what it sounds like — they buy all remaining payments on the note. A partial purchase means they buy only a portion of the payment stream, typically 3-5 years' worth, and the seller retains the remaining payments. Partial purchases work well for sellers who want some liquidity now but are comfortable holding the tail end of the note. They also allow Seller Edge to manage risk on larger or longer-term notes where taking the entire position might not make sense.

The practical takeaway for brokers is this: when you are structuring a deal with seller financing, build in the optionality for secondary market sale from day one. Use clean contract language, include financial reporting provisions, keep the amortization reasonable (3-7 years, not 20), and make sure there is a personal guarantee. If you do that, the seller has the option to hold the note or sell it — and that optionality changes the psychology of the entire negotiation.

What This Means for Brokers, Buyers, and Sellers

If you are a business broker, this episode should change how you think about seller financing in your listings. Knowing that a secondary market exists for well-structured seller notes means you can present seller financing as a feature, not a concession. The key is getting the contract language right from the start — no open-ended offset rights, personal guarantees in place, and financial reporting provisions baked into the note.

If you are a buyer who cannot quite qualify for full SBA financing — maybe you are short on the down payment, maybe the deal does not perfectly fit the SBA box — a seller note structured with eventual SBA refinancing in mind gives you a path to ownership that did not exist five years ago.

If you are a seller who has been saying "no" to carrying a note because you do not want to be a bank for five years, the secondary market changes the calculus. You carry the note, collect a few months of payments, and sell it for a lump sum. You still exit. You still get your cash. The timeline is just different.

Steph summed up the referral opportunity perfectly. Every deal she has lost because the seller and buyer gave up on SBA and went with informal seller financing? That is now a potential Seller Edge client. And every note that Seller Edge acquires where the buyer reaches the 24-month seasoning mark? That is a referral back to an SBA lender for refinancing. The two businesses feed each other.

SBA Deal Structuring Guide — How to structure acquisition financing for the best outcome
The Complete Guide to SBA 7(a) Loans — Understanding the SBA product that serves as the exit ramp for seller notes
100% Financing for Business Expansion — Creative approaches to structuring deals when capital gaps exist

Frequently Asked Questions

What is a seller note in a business acquisition?

A seller note is a form of financing where the business seller agrees to carry a portion of the purchase price as a loan from the buyer. Instead of receiving the full purchase price at closing, the seller receives payments over time — typically 3-10 years — with interest. It is one of the most common ways to bridge gaps between what a buyer can get from a bank and what the seller is asking.

Can you sell a seller note to someone else?

Yes. Companies like Seller Edge Capital purchase existing seller notes from sellers who want to convert their future payment stream into a lump sum of cash today. The note is purchased at a discount — meaning if $200,000 is owed, the seller might receive $160,000-$180,000 upfront. The buyer of the note then collects the remaining payments plus interest.

What makes a seller note attractive to secondary market buyers?

Three primary factors: clean contract language with limited or no offset provisions, a personal guarantee from the buyer, and built-in rights for the note holder to request financial statements. Payment history (seasoning) is also critical — notes with 6-12 months of on-time payments are far more attractive than brand-new notes with no track record.

How does seller financing interact with SBA loans?

SBA lenders require 24 months of payment history before they can refinance existing debt, including seller notes. This creates a natural timeline: a buyer acquires a business with seller financing, makes payments for two years, and then refinances into an SBA loan with a longer term and more favorable structure. The seller note gets paid off, and the buyer transitions to permanent financing.

What is offset language and why does it matter?

Offset language gives the buyer the right to reduce or stop payments on a seller note if they discover that the seller left behind unpaid debts or liabilities. While some offset protection is reasonable, unlimited or long-duration offset rights make a note very difficult to sell on the secondary market, because the buyer could stop paying at any time by claiming they found old vendor bills.

Ready to Take the Next Step?

Seller notes are one piece of the acquisition puzzle. The Lords of Lending Training Platform teaches you how to structure deals, work with lenders, and close acquisitions with confidence — whether you are using SBA financing, seller notes, or a combination of both.

Explore training options at learn.lordsoflending.com/pricing

This content is for educational purposes only and does not constitute legal, financial, or investment advice. Consult with a qualified attorney, CPA, and financial advisor before making business or financing decisions. Loan terms, rates, and programs are subject to change and vary by lender.