Personal guarantee of seller note?

searcher profile

March 09, 2024

by a searcher from Indiana University, Bloomington/Indianapolis - Kelley School of Business in Houston, TX, USA

Hi searchfunders! Tactical question here: is it common for seller notes to be personally guaranteed by the buyer?

It seems to be a bit counter to the intent of a seller note used to show the seller’s confidence in the business’ continued viability, but want to hear what the street says. Thank you!

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commentor profile
Reply by a lender
from University of North Carolina at Wilmington in Wilmington, NC, USA
^redacted‌ and myself see it both ways. Some sellers are insistent that you provide. From a lender perspective, the seller will be in a subordination position so it doesn't impact them. It will come down to the searcher's individual comfort. It's a bit unnecessary from my personal opinion but if it's get's the seller to the table, hey!
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Reply by an investor
from University of Oxford in Austin, TX, USA
I've seen other sellers request this. It's understandable why the seller would want this but I think this is an easy no. You are already taking on so much risk as a buyer - the seller knows more about the business than you, even post DD. For relationship heavy businesses you will even want clawback/forgiveness provisions in the seller note too.

Obvious disclaimer of every deal being unique applies here.
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