From SBA 7(a) loans to seller notes and earnouts — a practical guide to deal structures for heating and cooling company buyers and sellers in the $1M–$5M revenue range.
Acquiring or selling an HVAC business requires a deal structure that accounts for the industry's unique dynamics: seasonal cash flow swings, technician retention risk, the value of recurring maintenance agreements, and licensing transferability. Most lower middle market HVAC transactions — typically companies generating $300K–$500K in SDE or EBITDA — are structured as asset purchases rather than stock sales, allowing buyers to avoid inheriting unknown liabilities. The purchase price typically falls between 3x–5.5x EBITDA, with the final multiple heavily influenced by the quality and volume of active maintenance service agreements, the independence of the technician team, and the cleanliness of the seller's financials. Deals are commonly financed through SBA 7(a) loans, seller financing, earnouts tied to contract retention, or a combination of all three. Understanding each structure's implications — for cash at close, post-sale risk, and working capital — is essential before signing a letter of intent.
Find HVAC Businesses For SaleSBA 7(a) Loan with Seller Note
The most common structure for first-time HVAC buyers and ETA searchers. The buyer secures an SBA 7(a) loan covering 80–90% of the purchase price, injects 10% equity from personal capital, and the seller carries a subordinated note for the remaining 5–10%. The SBA loan typically amortizes over 10 years at a variable rate tied to prime, while the seller note is subordinated and often deferred for 12–24 months post-close.
Pros
Cons
Best for: First-time buyers, ETA searchers, and ex-military or trades veterans acquiring an HVAC business to owner-operate with SBA-eligible financials and 3+ years of tax returns.
Asset Purchase with Seller Note and Earnout
A hybrid structure commonly used when the buyer needs to derisk maintenance contract retention or customer concentration post-close. The buyer pays a portion of the purchase price at closing, the seller carries a note over 3–5 years, and an earnout component ties a portion of the total consideration to the business hitting specific performance milestones — most commonly the retention of active maintenance agreements or revenue thresholds in the 12–24 months following close.
Pros
Cons
Best for: Buyers acquiring HVAC companies where maintenance contracts represent 30%+ of revenue, customer concentration is elevated, or the seller has been the primary customer relationship holder.
All-Cash Acquisition at Negotiated Discount
Common for PE-backed home services roll-up platforms that have access to committed capital and prioritize speed and certainty of close over purchase price optimization. The buyer offers all cash at close — no seller note, no earnout — often in exchange for a 5–15% discount to the seller's asking price. Sellers who accept this structure trade upside for certainty and a clean break.
Pros
Cons
Best for: PE-backed home services platforms executing geographic roll-ups, or high-net-worth independent buyers with committed capital seeking a clean acquisition with minimal post-close seller involvement.
ETA Searcher Acquires Residential HVAC Company with Strong Maintenance Contract Base
$1,800,000
SBA 7(a) loan: $1,530,000 (85%) | Buyer equity injection: $180,000 (10%) | Seller note: $90,000 (5%)
SBA loan at prime + 2.75% over 10 years; seller note subordinated, interest-only at 6% for 24 months then fully amortizing over 36 months; asset purchase structure excluding accounts receivable; seller provides 90-day transition and training period; 200+ active maintenance agreements with written transferable contracts verified in due diligence.
PE Roll-Up Platform Acquires Light Commercial HVAC Operator with Customer Concentration Risk
$3,200,000
Cash at close: $2,240,000 (70%) | Seller note: $480,000 (15%) | Earnout: $480,000 (15%)
Earnout paid over 24 months based on retention of commercial maintenance agreements representing 40% of trailing revenue; earnout threshold set at 85% contract retention for full payout with sliding scale below; seller note at 5.5% interest over 4 years, not subordinated to any third-party lender; asset purchase with working capital peg based on 60-day trailing average; buyer retains two lead technicians via employment agreements executed at close.
Retiring Owner-Operator Sells Mixed Residential and Commercial HVAC Business via SBA with Earnout Overlay
$2,500,000
SBA 7(a) loan: $2,000,000 (80%) | Buyer equity: $250,000 (10%) | Seller note: $125,000 (5%) | Earnout: $125,000 (5%)
SBA loan over 10 years; seller note subordinated per SBA standby requirements, deferred 12 months then amortizing; earnout tied to first-year revenue at or above $1.8M trailing baseline; seller commits to 6-month active transition including customer introductions and technician mentorship; fleet of 8 vehicles included in asset sale with clean titles and service records; ServiceTitan CRM subscription transferred with 18 months of historical data.
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The most common structure is an SBA 7(a) loan covering 80–85% of the purchase price, combined with a 10% buyer equity injection and a 5–10% seller note that is subordinated to the SBA debt. This structure allows buyers to acquire an HVAC business with $150K–$300K in personal capital, depending on the purchase price, while spreading repayment over 10 years. The seller note signals confidence in the business transition and keeps the seller financially motivated during the handover period.
An earnout defers a portion of the purchase price — typically 10–20% — and pays it to the seller only if the business hits agreed performance milestones after close. In HVAC deals, earnouts are most valuable when maintenance contract revenue represents a significant share of the business's value. For example, if 40% of revenue comes from commercial service agreements that could cancel post-sale, structuring an earnout tied to contract retention for 12–24 months protects the buyer from paying a recurring revenue multiple for contracts that may not renew. Earnouts require precise language in the purchase agreement — vague milestones create disputes.
Nearly all lower middle market HVAC acquisitions are structured as asset purchases. This allows the buyer to acquire specific assets — customer lists, maintenance contracts, fleet vehicles, equipment, trade name, and goodwill — while leaving unknown liabilities, pending contractor board complaints, warranty claims, or tax issues with the seller's legal entity. Stock purchases are occasionally used when the business holds transferable licenses that are difficult to reissue in the buyer's name, but even then, buyers typically prefer asset deals with strong representations and warranties from the seller.
The SBA requires that any seller note be fully subordinated to the SBA 7(a) loan for the duration of the loan repayment. In practice, this means the seller cannot receive principal or interest payments on their note if the business is in default on the SBA loan. The SBA also typically requires the seller note to have a standby period — often 24 months — during which no payments are made. Sellers who need immediate cash flow post-close may resist this structure, which is why all-cash buyers sometimes win deals at a slight discount by offering certainty without standby provisions.
Working capital in HVAC businesses is highly seasonal, so the peg — the target working capital level the seller must deliver at close — should be calculated as a trailing 12-month average rather than a single month snapshot. Ensure clarity on whether inventory (refrigerant, equipment, parts) is included in the purchase price or treated separately. Accounts receivable are commonly excluded from asset purchases and settled by the seller post-close, but confirm this explicitly in the purchase agreement. If you're closing in summer or winter peak season, working capital needs will be higher than off-season averages.
This is one of the most common deal risks in HVAC acquisitions. Mitigate it through three mechanisms: first, require a formal transition and training period of 90–180 days with documented milestones as a condition of full seller note or earnout payout; second, tie a portion of the purchase price to an earnout based on customer retention or maintenance contract renewal rates in the 12 months post-close; third, before closing, verify that at least one or two licensed technicians are employed independently of the owner and have existing customer relationships. A business where the owner is the only licensed technician and the only customer contact carries significantly elevated risk and should be priced accordingly.
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