How Are Buyers Really Paying for Businesses?

What Owners Need to Understand About Deal Structure (Not Just Price)

When most owners think about selling, the first question is: “What’s my business worth?”

The question that gets far less attention—but has just as much impact on your outcome is: “How is a buyer actually going to pay for it?”

Two deals with the same purchase price can leave you in very different positions depending on:

• How much you get at closing

• How much is paid over time

• How much risk you’re still carrying after the sale

• Where you sit in the repayment order if something goes wrong

  
  

If you’re even thinking about a future sale, it’s worth understanding how deals are commonly structured today in the $1M-$25M+ range... and what that means for you as the seller.

1. Typical Structures for $1M–$5M Deals

In the lower end of the lower middle market, structures tend to fall into three fairly common buckets. For deals roughly $1M–$5M, you’ll often see something like:

1. 50% cash at closing / 50% seller note (paid over 3-7 years): Roughly one-third of deals in this range look like this. The buyer brings enough equity and/or bank debt to cover half the price at close, and the rest is a seller note.. a formal loan from you, repaid over time.

2. 10% buyer cash / 10% seller financing / 80% SBA loan: Another third use an SBA-backed structure. The buyer puts in 10% equity, the bank (via SBA) finances about 80%, and you carry 10% as a seller note. SBA likes this setup because it keeps the seller “aligned” post-close.

3. 100% cash deals (typically smaller transactions under ~$500K): The last third are true all-cash deals, but these are usually:

• Smaller asset sales

• Side-businesses or “micro” acquisitions

• Situations where the buyer is writing a check and not over-leveraging

  
  

Many owners assume they will get “all cash at closing” because that’s what they’d like. In reality, once you get over a certain size, some form of seller participation (note or rollover) becomes more the rule than the exception.

2. How $5M–$25M+ Deals Are Typically Financed

As you move into the $5M-$25M+ range, the buyer pool shifts toward:

• Private equity funds

• Strategic acquirers

• Search funds / independent sponsors

  
  

The structures become more institutional and more layered. A common breakdown for deals in this band looks like:

• 40–60% equity (cash) from the buyer: This is the capital they and their investors are putting at risk.

• 30–50% senior debt: Bank loans or other institutional debt, secured by the company’s assets and cash flow.

• 10–30% from the seller: In the form of either:

  • Rollover equity (you keep a minority stake in the new entity), or

  • Seller note (you’re effectively lending part of the purchase price back to the buyer)

    
    

This mix can vary by deal, but the pattern is consistent: the bigger the transaction, the more likely it is that your exit includes both a cash component and a “stay-in-the-game” component.

3. Why Seller Financing Often Increases the Purchase Price

Most business owners don’t love this statistic, but they need to know it:

Businesses that include some amount of seller financing tend to sell for 20% more than those that don’t.

Why?... Because seller financing:

• Signals confidence: You’re effectively saying, “I believe in the numbers enough to get paid over time.”

• Expands the buyer pool: Buyers who might be slightly short on cash—or who want to reserve more capital for growth—can stretch to a higher price when payments are spread out.

• Helps the deal “pencil” for lenders: A modest seller note can make the capital structure more attractive to banks and investors, especially if it reduces the amount of senior leverage needed.

  
  

The trade-off is obvious:

• Higher total price

• In exchange for more time and more risk

  
  

The question is not “Is seller financing good or bad?”It is: “At what terms and structure does it make sense for me?”

4. Where You Sit in the Capital Stack (Subordinated vs. Pari Passu)

If you agree to a seller note, where that note sits in the repayment order matters a lot.

Most Common: Subordinated Seller Note

In a typical deal:

• The senior lender (the bank) is first in line.

• The seller note is subordinated—meaning:

  • You only get paid after the bank is paid according to its terms.

  • If there’s a covenant breach or stress, the bank can restrict payments to you.

    
    

This is one reason banks like seller notes: they provide extra cushion without diluting the bank’s position.

A Less Common but Important Variant: Pari Passu

There is, however, an increasingly seen alternative in some deals:

Pari passu – Latin for “on equal footing.”

In a pari passu structure:

• The seller note and the lender are treated with the same repayment priority.

• Payments to you and the lender are made at the same level rather than with the bank strictly ahead of you.

  
  

This is more common when:

• The deal uses less total leverage, and

• The lender is comfortable sharing repayment priority because the risk profile is lower.

  
  

For sellers, pari passu can:

• Reduce repayment risk versus a fully subordinated note

• Improve the odds you’re actually paid as agreed if the business hits a rough patch

  
  

The trade-off:

• Banks will often apply more scrutiny to the buyer, the deal, and the projections when they aren’t clearly first in line.

• Not every lender will entertain this structure.

  
  

5. Why Structure Can Matter as Much as Price

It is tempting to focus on one number: the headline purchase price. But your real outcome depends on:

• How much is paid at closing vs. over time

• What has to go right for you to receive the full amount

• What protections you have if things go wrong

• Your position relative to banks and other lenders

  
  

A $10M deal structured as:

• $10M all cash at closing

  
  

is very different from:

• $6M at closing

• $4M subordinated seller note over 7 years

  
  

and different again from:

• $5M at closing

• $2M seller note

• $3M rollover equity in a PE-backed platform that may resell in 5 years

  
  

All three may be “$10M deals” on paper.They are not the same deal for you financially or emotionally.

6. How to Think About the “Right” Structure for Your Exit

The “best” structure for you depends on your:

• Risk tolerance (How comfortable are you with being paid over time?)

• Liquidity needs (How much do you need at closing to meet your goals?)

• Belief in the future buyer (Do you trust them to run and grow the business?)

• Appetite for ongoing involvement (Do you want a clean break or a second bite at the apple?)

  
  

A few practical questions to ask yourself:

• If a buyer could pay more total, but with a larger seller note, does that actually improve my life.. or just introduce stress?

• If a PE buyer asked me to roll 20% of my equity, do I want to stay psychologically and financially invested in the business?

• If a lender insisted on subordinating my note, am I comfortable taking the risk they are not?

  
  

These are not purely financial choices. They’re also about how you want the next chapter of your life to look.

Where an M&A Advisor Fits In

Sophisticated buyers - PE funds, strategic acquirers, experienced searchers.. think in terms of structure from day one. Most owners don’t.

A seasoned M&A advisor helps you:

• Understand what structures are typical for your deal size and industry

• Model different scenarios: price vs. terms vs. timing

• Negotiate not just the headline number, but your actual risk-adjusted outcome

• Push for better positioning of your seller note (including when pari passu is realistic)

• Design a process that creates competitive tension among buyers, which often improves both price and terms

  
  

You don’t have to become a financing expert—that is not your job.

But you do need someone in your corner who understands both:

• How buyers are really funding deals today, and

• How to translate that into a structure that supports your goals, not just theirs.

  
  

If you’d like to see how a buyer would most likely structure a deal for a business like yours.. and what mix of cash, debt, and seller participation would realistically be on the table.. a short conversation with the right advisor can give you a much clearer picture before you’re sitting across from an actual buyer.