RV Dealership Seller Financing and Earnouts
The price a buyer and seller agree on for an RV dealership does not always match what a lender is comfortable financing. Inventory that has aged, earnings concentrated in one strong year or uncertainty about manufacturer approval can all leave a gap. RV dealership seller financing, in which the seller accepts part of the price over time, is one way some transactions bridge that gap. Earnouts, which tie part of the price to future results, are another, though their use is more limited.
This article is general information about seller financing and earnouts in the sale of existing, operating RV dealerships. Every transaction is different, and tax, legal and program rules may apply. Buyers and sellers should work with qualified attorneys and accountants. Nothing here is legal, tax or financial advice, and nothing here is a commitment to lend.
How a Seller Note Works
With a seller note, the buyer pays part of the price at closing and the rest to the seller over time under a promissory note. The note typically sets out the interest rate, payment schedule, maturity and what happens if the buyer defaults. It may be secured by business assets, though the seller’s position is usually behind the senior lender’s.
Why Seller Notes Are Usually Subordinate
When a bank or SBA lender finances a large part of the purchase, that lender typically requires the seller note to be subordinate. A subordination agreement may limit when the seller can receive payments and what the seller can do if the buyer misses a payment. The floor plan lender will also have its own priority in new inventory.
Seller Financing With SBA Loans
When a transaction uses SBA-backed financing, program rules may affect how a seller note is structured, including whether it must be on full standby for a period and whether it can count toward the buyer’s equity. See our article on SBA loans for RV dealers.
Why Sellers Consider Financing Part of the Price
- It can help a qualified buyer complete financing
- It may support a price the seller considers fair
- It shows the seller’s confidence in the business
- It may have tax implications sellers should review with their advisors
Risks for Sellers
A seller who finances part of the price takes on the risk that the buyer may not pay. In an RV dealership, that risk can be affected by a downturn in demand, a lost brand, rising curtailments or poor management. Sellers should evaluate the buyer’s experience and financial strength and understand the subordination terms before agreeing.
Earnouts
An earnout makes part of the price depend on future performance, such as service revenue, gross profit or retention of a brand. Earnouts can be difficult to measure in a dealership because the buyer controls operations, pricing and inventory decisions after closing. Some lenders and programs limit or do not permit earnouts, so buyers should confirm early whether one is possible.
Using Seller Financing to Address Specific Risks
Seller notes are sometimes tied to specific concerns, such as whether a manufacturer approves the buyer or whether aged units sell. Any such terms must be carefully drafted by counsel. See our article on RV manufacturer approval.
How Seller Financing Fits With Valuation
Seller financing does not change what the business earns. Buyers should still confirm that documented cash flow can support all debt, including the seller note. Our guide to RV dealership valuation explains how buyers and lenders view earnings, and our article on RV dealer loan requirements covers how lenders treat seller notes.
For Sellers
Owners preparing to sell can review our guide on how to sell an RV dealership for ways to prepare for buyer and lender questions.
US Professional Funding helps buyers finance the acquisition of existing, operating RV dealerships, including transactions that combine lender financing with seller notes. Learn more about our RV dealership acquisition financing.
