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Is a Promissory Note Common?

Is a Promissory Note Common

Promissory Notes in Acquisitions in the Built Environment

  • Promissory notes are common in acquisitions in the built environment.
  • Promissory notes in acquisitions in the built environment cover a portion of the total purchase price in the form of a loan from the Seller to the Buyer. Usually, the promissory note includes interest. The remainder of the purchase price is usually paid in cash at the closing. Cash at closing typically ranges around 50% of the total purchase price.
  • It is unusual for a firm to be acquired with all cash in the built environment.
  • The promissory note is a type of financing used in acquisitions, where the seller agrees to accept a portion of the purchase price in deferred payments usually with interest. 
  • In most all cases, a promissory note is necessary for the buyer and seller to reach terms in an acquisition.  
  • If you are not willing to accept a promissory note when you sell your business in the built environment, most likely, you will not be successful selling your business.
  • If you are not willing to accept a promissory note, this sends a clear message to buyers: that you, the seller, is not confident in the business’ short and long-term prospects for success.
  • A promissory note is typically paid to the Seller over 3 to 5 years.
  • Payments are made either on a monthly, quarterly, semi-annual, or annual basis.
  • When a promissory note is used, the buyer will present the seller with a written note which defines the interest rate to be paid, amount owed, and other terms for repayment.