Forgivable Seller Notes

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by a searcher from Harvard University - Harvard Business School
in Austin, TX, USA

3mos ago

Forgivable Seller Notes

Considering using forgivable seller note in a capital structure to mitigate risk/bridge valuation. Would love to hear from folks who have used - what timeline and metrics did you use for forgiveness triggers? what went well and what didnt?

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reply by an intermediary 3mos ago
from The University of Chicago in Chicago, IL, USA

It is my understanding that SBA does not allow contingent payment, even if there is a cap. Father of the Forgivable Note (a friend) came up with FN idea, and SBA has approved, to overcome SBA concerns on contingent. Same objective as above of 3rd year additional payment can be achieved by changing the wording.

reply by a searcher 2mos ago
from IESE Business School in New York, NY, USA

I've used it for revenue and maintaining customer relationships. Unless seller is rolling over equity, you can't expect them to agree to many metrics beyond one year. I would never try to connect it to EBITDA or Net Profit in any case.