A seller note changes who carries the risk
Seller financing leaves part of the purchase price payable after closing. It may bridge a funding gap, but the seller then depends on the buyer’s performance and the agreed legal protections. A larger nominal price with uncertain collection is not automatically better than a smaller cash offer.
Begin with principal, rate, payment timing, amortization, maturity, balloon, collateral priority and default remedies. State whether payments are permitted under senior financing. There is no universal current Indiana seller-note rate or standard term presented here.
Compare payments and the maturity balance
An illustrative $100,000 note at 8% nominal annual interest, amortized over ten years with monthly payments, requires $1,213.28 a month. If it matures after the sixtieth scheduled payment, the remaining balance is about $59,836.87. The buyer must fund that balloon in addition to payments already made.
A five-year term and a ten-year amortization are different inputs. An interest-only note preserves the principal balance; a standby note may accumulate interest without current payments. Put the agreed method into the documents and the cash-flow model. Do not assume a refinance will be available when the balloon arrives.
Coordinate with the senior lender before negotiating
A paying seller note, a subordinated note and a note intended to count as equity can receive different treatment. The SBA financing guide identifies the current rule reference; lender review determines how the proposed note fits the actual project. Historical summaries of a twenty-four-month payment pause should not be used as current blanket advice.
The seller should understand lien priority, payment blocks, restrictions on enforcement and whether personal guarantees have practical value. Legal counsel should draft/review the note, security documents, subordination agreement and any related covenants as a coordinated package.
| Term to resolve | Why it matters |
|---|---|
| Payment start and permitted deferrals | The seller’s expected cash may differ from the buyer’s proposed schedule |
| Amortization versus maturity | A manageable monthly payment can conceal a large balloon |
| Collateral and priority | Junior security may not produce full recovery after senior debt and costs |
| Reporting and insurance | Information and asset protection help monitor risk; they do not eliminate it |
| Default, cure and enforcement | Remedies must fit the transaction documents and applicable law |
Installment treatment is not universal tax deferral
Federal installment-sale rules depend on what is sold and the transaction facts. Some gain categories and depreciation recapture have different timing requirements. Separate principal, interest and applicable gain treatment with the seller’s tax advisor before comparing after-tax cash.
An acceptable interest rate also raises tax and legal questions; a published federal rate is not a market quote, and imputed-interest rules can require analysis. This page does not calculate tax savings or tell a seller what rate to charge.
Evaluate the buyer and the downside
Review the borrower’s operating plan, liquidity after closing and debt burden. Test lower revenue, equipment failure and higher senior interest as scenarios. Ask who owns the obligation, what financial reporting is available and what happens if the buyer sells assets or changes the operation.
Use the acquisition calculator to show payments and balloon exposure. Use the tax preparation guide to assemble records for professional review. A clear written risk allocation is more useful than an unsupported claim that seller financing closes a certain percentage more deals.
Sources and scope
Public guidance reviewed October 17, 2026. Rules and individual transaction facts can change; a source does not establish a particular property’s compliance, financing approval or value.
Put the assumptions to work
Use the seller offer comparison to separate closing cash from a note and conditional amounts. Follow with the seller proceeds calculator using your own costs, debt and tax-reserve assumption.