Forgivable seller note best practices

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by a searcher from New York University - Leonard N. Stern School of Business
in Grand Rapids, MI, USA

1yr ago

Forgivable seller note best practices

What are the most common ways seller notes are made forgivable?

Examples I've come across:

If revenue is less than $3mm, seller note balance and all interest are void and forgiven reducing the note value to $0 and eliminating the debt obligation fully.

If DSCR falls below 1.5 in Y1, reduce seller note by $500k. If DSCR falls below 1.5 in Y2, reduce seller note by $500k.

I know one size doesn't fit all, so I'm asking for collective wisdom on what has worked in your deals.

All thoughts appreciated.

7 Likes

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reply by a professional 1yr ago
from University of Michigan in Detroit, MI, USA

I agree with Ethan's comment here. Of course, it depends on what risks you are trying to mitigate. But if you can tie it to a "hard" value like revenue, all the better.

reply by a searcher 1yr ago
from University of North Carolina at Chapel Hill in Miami, FL, USA

Good information. I found this site to be pretty useful in explaining the options. redacted