Sellers More Willing to Offer Financing and Earnouts to Accommodate High Rates

As the business-for-sale market adjusts to today's high-interest rate environment, seller-accommodated deal structures have become more common. Moreover, banks have

tightened their lending standards and small businesses are more sensitive to higher

borrowing costs. This leaves many sellers in the position of having to get comfortable

with structuring the deal, including financing and earnouts, whereby the seller must

‘earn' part of the purchase price based on performance.

" Deal structure has shifted to reflect less senior debt appetite given the higher rates.

This means more seller financing and a lot more earnouts than before. The biggest shift

has been the quantity and volume of the earnout in the deal...even as high as 50% in

recent cases," said Sam Scharich, buy-side director at Calder Capital.

In fact, sellers are more open to seller financing, with 24% of owners saying they will

now consider it, compared to 21% last year. Of those opposed to seller financing, this

year 44% say they will not offer it versus 51% last year. This is good news for buyers,

65% of whom consider seller financing either extremely or very important. Among

sellers open to offering financing, 23% are willing to go as high as 50% of the purchase

price.

" We are seeing a lot of buyers asking for 10-20% of seller financing with rates lower

than the SBA rate the buyer is being quoted. This relieves some of the pain with rates,

and sellers are obliging."