Seller's Guide

Protecting Yourself As A Note Holder

Seller financing works — but only when the note is structured to protect you. Here's an honest look at the real risks and the six protections that address them.

Know The Downside

Seller financing is not risk-free.

Before you carry a note, understand exactly what could go wrong — so you can structure around it rather than discover it after the fact.

If the buyer defaults on an SBA loan, the SBA lender is in first position — they're paid from liquidated assets before you see a dollar
Practice goodwill evaporates quickly in a distressed sale; equipment and patient records rarely cover the full note balance
In a worst-case SBA default scenario, you could lose your entire seller note balance
Revenue can decline if the buyer mismanages the transition, directly affecting their ability to pay you
Legal proceedings to recover from a defaulting buyer are time-consuming and expensive

How To Protect Yourself

Six protections every seller note should include.

These aren't exotic legal maneuvers — they're standard practice among experienced sellers, and none of them should be negotiable away.

Personal guarantee — the buyer personally guarantees the note, not just the practice entity
Life insurance assignment — buyer maintains a term policy equal to the note balance, with you as beneficiary
UCC-1 filing — gives you a secured interest in business assets ahead of unsecured creditors
Physician buyer vetting — licensed physicians with active practices have far lower default rates than general business buyers
Transition period — stay on part-time for 6–12 months to protect practice revenue during handoff
Attorney-drafted documents — never use generic templates; use a healthcare M&A attorney who has done this specific transaction type before

The Bottom Line

A well-structured note is a sound financial instrument.

SBA 7(a) loans have a historical default rate of roughly 1–2%. Physician buyers — with professional licenses, personal guarantees, and active careers at stake — represent some of the lowest-risk borrowers in any asset class. A properly documented seller note, with the protections above in place, is a fundamentally sound way to structure your exit. That said, no deal is risk-free, and every protection here should be reviewed by your own attorney before you sign.

Important Disclaimer: The information on this page is for educational purposes only and does not constitute legal, financial, or tax advice. Every practice sale is unique. PracticeAmerica strongly recommends consulting a healthcare M&A attorney, a CPA experienced in medical practice transactions, and a financial advisor before making any decisions regarding a practice purchase or sale.

Ready to structure a protected seller note?

PracticeAmerica's Seller Listing Agreement and document suite are built around these exact protections from day one.

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