Seller Financing and Earnouts in Solar Installer Acquisitions
Not every dollar of an acquisition price has to be paid at closing. In some solar installer sales, the seller agrees to receive part of the price over time through a promissory note, or ties part of the price to how the business performs after the sale. Solar installer seller financing and earnouts can help bridge a gap between what a buyer can finance and what a seller expects, and they can share risks tied to the backlog, warranty claims and changes in demand.
This article is general information for buyers and sellers of existing, operating solar installation and service companies. Deal terms, tax treatment and lender rules vary, and both parties should work with qualified attorneys, accountants and tax professionals. Nothing here is legal, tax or financial advice.
How Seller Financing Works
With seller financing, the seller accepts a promissory note from the buyer for part of the price, with payments over time. The note’s terms, including interest, payment schedule and security, are negotiated between the parties and documented by counsel. When a bank or SBA-backed loan is also involved, the seller note is typically subordinate to the senior lender, and the lender may set conditions on its terms.
Why Parties Consider It
- Bridging a price gap: the seller may receive a price the buyer could not fully finance at closing
- Showing confidence: a seller willing to be paid over time signals belief in the business
- Supporting the transition: the seller has a reason to help the buyer retain crews, customers and supplier relationships
- Sharing risk: if problems emerge after closing, the parties may have a framework to address them
Earnouts
An earnout ties part of the price to future results, such as revenue, gross profit or completion of the backlog. In solar, earnouts may appeal when results depend on policy conditions, a large signed commercial project or a recent sales surge whose durability is uncertain. Earnouts can also create disputes over how results are measured and who controls decisions after closing, so the terms need careful drafting. Some lenders and loan programs limit or restrict earnouts, so buyers should confirm what their lender will allow before agreeing to one.
Solar-Specific Risks to Address
- Backlog conversion: whether signed contracts become completed installs; see our article on solar installation backlog
- Warranty claims: who bears the cost of problems on past installs; see our article on solar workmanship warranties
- Policy changes: how a change in demand after closing would affect the note or earnout
- Licensing transition: whether the seller must remain involved while a new qualifier is in place
Some agreements allow the buyer to offset documented losses against the seller note, though such provisions must be negotiated and drafted with counsel.
Seller Financing and SBA Loans
SBA program rules address how seller notes may be counted and whether payments may be made during certain periods. These rules change and depend on the transaction. See our article on SBA loans for solar installers.
Considerations for Sellers
Sellers who accept a note take on credit risk tied to the buyer and the business. They may want to evaluate the buyer’s experience, the overall debt structure and the security offered. Our guide on how to sell a solar installation company covers preparation in more detail.
Effect on Valuation
Seller financing and earnouts change the timing and certainty of payments, which affects what a price really means. See our guide to solar installation company valuation.
US Professional Funding helps buyers finance the acquisition of existing, operating solar installation companies, including transactions that combine lender financing and seller financing. Learn more about our solar business acquisition financing.
