Seller Carryback
What does it mean
A Seller Carryback is a loan arrangement between the seller and buyer of a business. In this setup, the buyer agrees to pay a portion of the business purchase over time, with an added interest rate, which is usually included in the deal.
Why does it matter
Seller Carrybacks are widely used in business acquisitions due to a common scenario. When buying a business, the purchase price often includes an intangible value called Blue Sky or Goodwill. This represents the amount paid beyond the combined value of the tangible assets. Banks find it challenging to finance this portion due to the lack of tangible collateral. This is where Seller Carrybacks come into play. In this arrangement, the seller fills this gap by financing a portion of the purchase, enabling banks to finance the collateralized portions more easily.
Other things to be aware of:
- Make sure any Seller Carryback loan is factored into your DSCR
- Stand-By Agreement may be an option to consider
- Understand the terms of the loan (interest rate, term, balloon, etc)
Other Relevant Terms
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