When the seller becomes part of the stack.
The fastest bridge across a valuation gap is often sitting across the negotiating table. Seller notes and earnouts let the seller finance part of their own exit, aligning price with performance, and they are frequently the difference between a signed LOI and a dead one.
Seller notes: deferred price, real paper
A seller note is a loan from the seller for part of the purchase price: principal, rate, term, and standby provisions all negotiated. In SBA deals, notes on full standby can support the equity injection; in conventional stacks they simply reduce the cash needed at close. Either way the note is a security-like instrument that deserves real documentation.
Earnouts: price that proves itself
An earnout ties part of the price to post-close performance: revenue retention, key contracts, or EBITDA targets. Sellers accept them when metrics are clean and definitions are exact. Vague earnouts create disputes; precise ones close valuation gaps.
Where they fit in the full capital stack
Notes and earnouts rarely stand alone: they combine with senior debt and investor equity through your SPV. The stack has to reconcile in the model, the purchase agreement, and the offering documents at once, which is exactly the packaging work we do.
Scope of work
Straight answers.
The questions dealmakers ask about this before they book.
Commonly 10 to 30 percent of purchase price in lower-middle-market deals, driven by lender requirements, seller motivation, and how much cash the stack needs to replace.
Economically yes: they defer price. Legally they are contingent purchase price, and their treatment in your debt covenants and investor documents must be explicit.
Notes on full standby can count toward part of it under current rules, subject to lender policy, usually alongside genuine equity rather than instead of it.
Here is how we structure it.
Entity, offering documents, CFA-built model, data room, then debt and equity introductions. Flat fee, no percentage of your raise. Map your deal on a strategy call.