A Florida M&A deal closed on my desk last summer with a seller note structure that made my tax partner laugh and my litigation partner stop laughing. The face amount was $4 million. The stated interest rate was 8%. Layered on top was a “performance kicker” of up to $800,000 payable at the second anniversary if the acquired business hit certain EBITDA milestones, and a “completion bonus” of $200,000 payable at the third anniversary if the founder remained employed by the buyer. The buyer’s lawyers, out of state, treated the kicker and the bonus as separate consideration items. They were not. Under Florida usury analysis, both are likely characterized as additional interest, and the resulting effective rate on the note pushed past the 25% civil usury threshold and well into criminal usury territory.
The deal closed anyway. The fix took ninety minutes and a re-papered structure that backed out the kicker as a true earnout and the completion bonus as a true employment-side payment. The buyer’s lawyers had never thought about Florida usury law because the buyer’s other deals all involved cash purchase prices with no seller paper. The seller’s lawyer had not thought about it because the deal terms looked familiar from out-of-state practice. Both sets of lawyers were Florida-licensed; neither had focused on the issue.
Florida usury law is one of the few state-law traps in M&A practice that can render a deal instrument unenforceable, forfeit principal under specific statutes, and — in the worst case — expose the parties to criminal liability. The rules are not complicated. They are routinely missed in middle-market deals because the structure of the seller note hides the issue inside language drafted as something else.
The structure of Florida’s usury regime
Florida’s usury statutes live in Chapter 687 of the Florida Statutes. The structure that matters for M&A deals operates in three tiers.
The first tier applies to loans of $500,000 or less. Section 687.03 caps the interest rate at 18% per annum. A rate above 18% is civilly usurious. The lender forfeits the right to collect the entire amount of interest charged, retains the principal, and can be sued by the borrower to recover any interest already paid. The forfeiture is not catastrophic for principal but it eliminates the lender’s expected return on the transaction.
The second tier applies to loans above $500,000. Section 687.071 raises the civil cap to 25% per annum. A rate above 25% on a loan in this size range is civilly usurious. The lender’s penalty here is the same — forfeiture of interest — but the rate threshold is higher.
The third tier — criminal usury — kicks in at 25% per annum for loans of $500,000 or less and at 45% per annum for loans above $500,000. A rate above the criminal threshold triggers Section 687.071, which provides that the loan contract is unenforceable in its entirety, the lender forfeits both principal and interest, and the lender is exposed to criminal penalties. The criminal threshold is not just a higher civil cap; it is a different, more severe regime.
For an M&A seller note, the size-of-loan test usually puts the transaction in the second and third tiers — 25% civil, 45% criminal. A 12% stated rate on a $5 million seller note looks well within the cap. The trap is that the stated rate is rarely the relevant rate.
The earnout-as-interest characterization problem
Florida’s usury analysis is functional, not formal. The courts have long held — going back to Williams v. Williams in 1974 and the line of decisions extending through the 2018 First District Court of Appeal’s ruling in Brockwell v. Eberley — that “interest” includes any amount paid by the borrower to the lender in excess of the principal, regardless of what the parties call it. A bonus, a fee, a participation right, an equity kicker, a contingent payment tied to the borrower’s performance — each of these may be characterized as additional interest if the substance of the arrangement is that the lender is being paid for the use of money.
That principle is consequential for seller-note structures. An earnout-style kicker on a seller note — a contingent payment to the seller-lender if the acquired business hits performance milestones — looks superficially like an earnout-style purchase price adjustment. The trap is that the same payment can be characterized as additional interest on the note if the kicker is structured so that the seller-lender’s right to the payment derives from the lender-borrower relationship rather than from the seller-buyer relationship.
The factors Florida courts use to draw the line include whether the kicker is paid to the seller as a seller (regardless of whether the seller-lender has been repaid in full on the note) or to the seller as a lender (only if the loan remains outstanding); whether the kicker is described in the note itself or in the purchase agreement; whether the kicker can be triggered independently of the note’s repayment; and whether the kicker’s economic substance is a return on the loan or a deferred portion of the purchase price.
A kicker drafted with no attention to these factors — a “performance bonus” payable to the seller-lender on certain conditions, with no clear documentation that the bonus is a deferred purchase price payment rather than a return on capital — is at substantial risk of recharacterization. The risk is not theoretical. Florida courts have, in several cases, characterized contingent payments to seller-lenders as interest and applied the usury caps to the combined return.
The math compounds quickly
Take a representative middle-market deal. A $5 million seller note, 8% stated interest, three-year term, with a “performance kicker” of up to $1.5 million payable at maturity if the acquired business achieves an EBITDA threshold. The stated interest over three years is $1.2 million. The kicker, if paid in full, is $1.5 million. The combined return to the seller-lender is $2.7 million on $5 million of principal over three years.
An effective-rate analysis on the combined return treats both the stated interest and the kicker as interest. The annualized effective rate is approximately 18% — well below the 25% civil cap but well above the 18% civil cap that would apply if the loan amount were $500,000 or less. On a $5 million note, the 25% threshold is the relevant cap, and the 18% effective rate is within it. The deal is civilly usurious only if the kicker pushes the combined return above 25% annualized.
A more aggressive structure — same $5 million note, same 8% stated interest, plus a $1.5 million performance kicker plus a $500,000 completion bonus — pushes the combined annualized return to approximately 21%. Still under the 25% civil cap. Add a $1 million equity kicker payable on a change-of-control or refinancing event, and the combined return exceeds 25% if the change-of-control happens early in the note term. A change-of-control in year one of a three-year note, with all kickers paying out, can drive the annualized effective rate above 30%.
The 30% rate is well above the 25% civil cap and inside the 25-to-45% range that Section 687.071 treats as civilly usurious. A 30% effective rate in this range triggers interest forfeiture and exposes the seller-lender to a Section 687.04 action by the borrower to recover any interest already paid. A 50% effective rate — possible on a heavily-kicker-laden short-term note where the kickers all pay early — crosses the criminal usury threshold and renders the entire note unenforceable.
The savings clause and what it actually does
The standard drafting response to Florida usury risk is a “usury savings clause” in the note — language stating that any portion of the interest or other charges that exceeds the maximum legal rate shall be deemed reduced to the maximum legal rate, with any excess applied to principal or refunded to the borrower. Most Florida-drafted seller notes include some form of this clause.
The savings clause is meaningful but not bulletproof. Florida courts have enforced savings clauses in the civil-usury context, treating them as a contractual mechanism for compliance with the statute. In the criminal-usury context, the courts have been more skeptical — the Florida Supreme Court’s 1981 decision in Jersey Palm-Gross v. Paper held that a savings clause cannot resurrect a criminally usurious note. If the rate is criminally usurious on its face, the note is unenforceable regardless of the savings language.
The practical effect is that a savings clause protects against accidental civil usury — a structure where the parties did not intend to charge a usurious rate but the math came out that way — and does not protect against deliberate or facially criminal usury. For most M&A seller-note structures, the savings clause is adequate. For aggressively-structured kickers that, on their face, push the combined return above 45% in plausible scenarios, the savings clause is not enough.
What to draft into the LOI
The LOI work on a Florida deal with seller financing and any contingent consideration is short and high-leverage. Three lines of LOI language prevent the recharacterization problem before it lands at closing.
The first is a clear allocation of contingent payments between the note and the purchase agreement. Any payment that is conceptually a deferred purchase price — a true earnout based on the business’s performance, payable to the seller as a seller — should be documented in the purchase agreement, not in the note. Any payment that is conceptually a return on the seller-lender’s capital — a kicker payable only if the note remains outstanding — is exposed to the usury analysis and should be sized accordingly. The LOI should make the categorization clear.
The second is a choice-of-law and venue election for the note. Florida courts apply Florida usury law to notes governed by Florida law and to notes “performed” in Florida, with a substantial nexus analysis for borderline cases. A note with a choice of Delaware or New York law may be enforced as drafted, depending on the connection of the parties and the transaction to the chosen state. The LOI is the place to specify the choice-of-law preference; the merger agreement and the note can implement it. M&A practice in Florida increasingly defaults to non-Florida choice of law on seller notes precisely to avoid the usury question, though the choice is not always honored.
The third is a usury savings clause with explicit acknowledgment of the criminal threshold. The standard savings clause covers the civil cap; a Florida-specific savings clause should also acknowledge that the parties do not intend to charge a rate at or above the criminal threshold and that any provision having the effect of doing so is void ab initio. The drafting is straightforward and the protection it adds is meaningful.
For a Florida deal with no seller financing — a pure cash purchase price with no kickers, no contingent payments to a seller-lender, no performance bonuses tied to a note — the usury analysis is irrelevant. For a Florida deal with even modest seller financing and any contingent or performance-based component, the analysis is worth running at the LOI stage. The cost of the analysis is half an hour. The cost of getting it wrong is the seller’s right to collect on the note. The governance and structuring analysis we run on every Florida M&A engagement now includes the usury check as a default item; out-of-state firms doing one-off Florida deals routinely skip it and discover the issue after closing.
If you are working through a Florida M&A deal with a seller note that has any kicker, bonus, or contingent-payment component, feel free to reach out to my firm manager, Magda, at Magda@montague.law, or fill out our contact form. Mention you read this post.
— John
Related reading: For how the same usury statutes apply to convertible notes raised across state lines, see Convertible Notes and State Usury Laws: A 2026 Jurisdiction Map for Florida Founders Raising Across State Lines.
