Selling a business: extend the note or cash out?

A husband and wife owned a partial interest in a successfulretail chain. Five years ago they decided to sell their interest totheir partner in exchange for a note. Half the note amortized over fiveyears with the balance due in a balloon payment at the end of the note'sterm. The business partner has now approached our client with the offerto roll the note for an additional term. The client approached us withseveral questions:

  • Should they roll the note or take the balloon payment?

  • If they roll the note, what kind of interest rate would be most appropriate and for what term?

  • If they take the balloon payment, what are their investment alternatives?

  • Are there any tax complications with extending the note since the original sale was done on an installment basis?

  • What are the implications of this decision in terms of broader questions about retirement?