# Capital stack

The layers of money in a deal, ordered by who gets paid back first.

The order is the whole point, because it decides who absorbs a bad year. The bank sits at the bottom with a lien and gets paid first. The [seller note](https://searchspheresource.com/glossary/seller-note) sits above it, usually on standby, so the seller waits while the bank is made whole. The buyer's own equity sits on top and is what disappears if the business is worth less than the debt. Every dollar moved down the stack is cheaper and more dangerous; every dollar moved up costs more of the company. A lender reads the stack to see whether anyone but them is taking real risk.

In numbers: A $4M purchase funded by a $3M SBA loan, a $600k standby seller note, and $400k of buyer equity puts 10% of the price in the layer that is wiped out first.

Source: https://searchspheresource.com/glossary/capital-stack
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