Question for Lawyers & Experienced Buyers - Indemnification

September 24, 2025

by a searcher from Lafayette College in Boston, MA, USA

QUESTION FOR LAWYERS & EXPERIENCED BUYERS: In an SBA-sized acquisition ($1–5M purchase price), what do you typically see in terms of indemnification structure? Specifically, the broker I’m negotiating with says sellers don’t often agree to an “Indemnity Holdback” in these deals (as a % of the purchase price), especially when there’s already a seller note in place (in my case, a ~10% seller note). The broker says that the seller note effectively serves as the holdback, and that it’s not market to have both. For attorneys drafting or reviewing deals: - Is it common is it to see an indemnity holdback in addition to a seller note, and if so, at what percent of purchase price and survival period? - In practice, do seller notes + set-off rights serve as the standard indemnity protection at this size? What is market? Curious to hear what you all see in the Main Street market. I am happy to connect and discuss 1:1 as well.

Reply by an investor
from Harvard University in Santa Fe, NM, USA

Just keep in mind that if there is a cash need due to a rep breach, for example undisclosed threatened litigation or whatever, offsetting a note does not help you cover the costs of that. You need cash to do that. May not need to be held back, but you need to be able to go against the seller for cash indemnity payments for a third party claim that causes you losses, IMO

Reply by a searcher
from Harvard University in Cambridge, MA, USA

Curious to hear from others, but that has been my experience. If the seller note is of a meaningful size, then it serves as the holdback (and this is made explicit in the purchase agreement). The way I get comfortable with it is we put two types of indemnification scenarios in the purchase agreements. You have violations of "regular" reps and warranties, which are subject to a cap that is typically around the value of the seller note. Then you have violation of "fundamental" reps and warranties where you can go up to the full purchase price. So you're not gaining much by having both a holdback and a note. If your note is 10% and you get an additional 5% in holdback but your cap for the regular reps and warranties is only 10%, that extra 5% doesn't do much for you. And if you have a fundamental violation, the extra 5% doesn't do much either because you likely have a way bigger problem. Of course, if they are willing to give you both, take it, but I don't see it as a dealbreaker. What I would ensure is that you are covering most/all of your cap with the note and that you make it explicit in the agreement that the note can be used for indemnification. My $0.02 as a non-lawyer but experienced buyer. Would love to hear others' perspective!

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