Is it typical to need to personally guarantee seller financing?

by a searcher from McGill University

1 week ago

Hi all - I'm finalizing the LOI on an acquisition of a small pet services brick and mortar unit (1st acquisition as part of a broader roll-up plan). We included seller financing to ensure the seller would be invested in the outcome over the coming years but they are insistent on a personal guarantee for the financed portion. Is this common? Have others had to do this in order to secure seller financing?

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professional from University of Michigan - Ann Arbor

Hi ^Searchfunder member‌, this is fairly common. If you are relying on SBA debt (which I imagine you are), I wouldn't get too hung up on it. Your SBA lender will require: (1) a PG and (2) that the seller note is subordinated to the the SBA debt. As a result, the seller's PG isn't worth that much.

Focus your energy on negotiating the best terms possible for the seller note. Although it isn't worth that much, the PG is still a concession (sellers don't always get it), and can be treated as such during negotiations.

I hope that helps. Let me know if you want to discuss further. DM me here or reach out directly at --@----.com

1 week ago | like reply | 1 like

lender from Eastern Illinois University

We do a lot of senior debt financing, and I would say I am seeing a personal guarantee required on the seller note about a third of the time. Many buyers do not have an issue with it because it is typically secondary to the SBA loan, but of course the best practice would be to not have a personal guarantee on it. It is all about what you can negotiate with the seller.

1 week ago | like reply | 1 like

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