Payments over time — the deferred-consideration toolkit.

Deferring part of the purchase price is the workhorse of sub-$10M deals, and for good reason — it lowers the cash needed at close, signals seller confidence to a senior lender, and can unlock real tax leverage for the seller. But "payments over time" hides three structurally different instruments, and treating them as interchangeable is how a buyer ends up with a balloon they can't refinance or a note priced so low the seller's advisor kills the deal. The toolkit only works if you know which tool you're holding.

§ 01 · Three flavors of deferredNote, earnout, escrow.

"Payments over time" is 20–50% of total enterprise value in 2026 hybrids — the most common structure in sub-$10M acquisitions — and it comes in three flavors. A seller note is fixed at close and paid over time, conditional only on the buyer not defaulting. An earnout is variable, paid on a post-close performance metric (and discounts hardest of the three, because performance is uncertain). An escrow holdback is fixed at close and paid out absent an indemnification claim. They carry different risk and serve different purposes — the note is financing, the earnout is risk-sharing, the escrow is protection — and a sound structure picks each deliberately. The seller note offers the buyer three benefits: it lowers cash at close (a $3M deal with a 30% seller note needs $2.1M cash, not $3M), it signals seller confidence (a senior lender prices the SBA loan differently), and it unlocks the seller's installment-sale tax leverage (a 3–8% present-value saving the seller can trade into a multiple concession). The note's own security and offset mechanics are detailed in promissory notes and stock pledges.

§ 02 · Pricing the noteThe 7–9% floor.

A seller note has to be priced for what it is: subordinated debt, behind the senior lender, backed only by the agency. The 2026 rate floor is 7–9% — below 7% is economically irrational, because it prices the note under Treasuries plus the credit premium a subordinated position demands, which subsidizes the buyer. (A seller proposing 4–5% is, in present-value terms, giving money away — usually because no one ran the discounted-cash-flow math.) Two amortization structures dominate. Fully amortized monthly (5/7/10-year principal-plus-interest) gives predictable cash flow on both sides. A balloon (interest-only or partial during the term, with a large principal payment at maturity — often a 10-year amortization with a 5-year maturity) produces a seller-friendly headline yield but buyer-hostile refinancing risk at the balloon date. A PIK note compounds that exposure: 9% PIK held five years grows the terminal balance ~54% above principal, and a buyer default in year four leaves the seller worse off than a smaller cash-pay note would. The market backdrop that sets these rates is in the 2026 market context.

§ 03 · The standby and blockage trapsWhen the note stops paying.

Two senior-lender mechanics can stop a seller note from paying without the note technically defaulting, and a buyer who doesn't disclose them up front is setting up a dispute. The SBA full-standby default is 24 months: no principal, no interest, no cash — the note simply accrues at its negotiated rate and pays as a lump at standby expiration. The discipline here is timing: warn the seller about a standby requirement when you propose the note, not 30 days before close, because a seller who learns at the eleventh hour that they'll receive nothing for two years will (rightly) blow up the deal. The payment-blockage trigger fires when the coverage ratio drops below 1.15× or 1.25×: the senior lender's intercreditor rights freeze seller-note payments for roughly 180 days. The note doesn't default — it just stops paying — which is small comfort to a seller who was counting on the income. Both mechanics are why the subordination terms matter as much as the rate, a subject developed in acquisition funding strategies.

§ 04 · The time value of a deferred dollarWhat it's really worth.

The discipline that ties it all together is the time value of money: a dollar paid in five years is worth less than a dollar today, and a buyer who structures deferred consideration without discounting it is mis-pricing the deal. A $1M five-year installment at 7% interest, discounted at the seller's 8–12% cost of capital, is worth roughly $720–790K of real economic receipt — not $1M. That gap cuts both ways: it's why a seller should demand a fair coupon (the interest is partial compensation for the wait), and it's why a buyer can offer a higher headline with deferred components and still pay less in present-value terms. The seller's offsetting advantage is the installment-sale tax deferral, worth 3–8% of purchase price in present value for a seller in a 30%+ combined bracket — material enough to be leveraged in negotiation. Structure deferred consideration knowing the flavor, pricing the rate honestly, disclosing the standby and blockage traps, and discounting every deferred dollar to present value, and "payments over time" becomes a precise instrument rather than a source of post-close grief. The earnout flavor — the variable one — gets its own treatment in structuring the earnout.

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