Forgivable Seller Notes

by a searcher from University of South Carolina

1 month ago

I am currently structuring a SBA financed offer with a forgivable seller note. I have a general outline for how I would like to structure the note, but would like to see how others have structured similar notes in the past. 

For reference, there is one customer that contributes a large amount of the revenue. To mitigate this risk I am adding the forgivable note and have thought about ways of attaching it to the specific customer more than the overall revenue. For example, if the large customer stopped working with this business post acquisition, but I still maintained revenue levels then I would like some type of claw back clause in place to not have to pay out most or all of the note.

Looking for more detail on the forgivable seller note strategy in general and would appreciate any dialog.

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12 comments

lender from St.Cyril and Methodius University

Thanks for the tag ^Searchfunder member‌. I've had clients on multiple occasions trying to solve an identical issue. Please determine the following: 1) The amount of profit coming from the client and its impact on the purchase price. 2) The likelihood of losing that client. 3) The timeframe for which you need to be protected against that risk. For example, a searcher was preparing an LOI where one client comprised 30% of the total revenue. We structured a five-year forgivable note. Please feel free to reach out for more detailed information on the forgivable language.

1 month ago | like reply | 0 likes

searcher from University of South Carolina

Create an earn out based on the seller note. So if you are making them carry 20% of the value. Make that contingent on benchmarks for a F12. If they don't hit the same EBITDA and are off 10% for example, than take that delta of the seller note

1 month ago | like reply | 0 likes

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