SBA question - personally guaranteed seller note?

by a searcher from Washington University in St. Louis

3 months ago

I'm negotiating an LOI for an SBA deal and the seller has asked for a personal guarantee on the seller note. Am I permitted to personally guarantee a seller note in the SBA structure? Is that market? (For additional context -- I'm funding the deal with 20% cash, the seller note is not being used as part of my required equity contribution)

Thanks

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searcher from Tulane University - A. B. Freeman School of Business

following

2 days ago | like reply | 0 likes

intermediary from The University of Chicago - Booth School of Business

PG on Seller Note is common, especially if the amount is significant. As others have said, Seller Note is subordinate to the lender. So, if the buyer defaults with the lender, clearly Seller does not get paid. However, what if buyer is good with the lender, but does not pay the seller? That is when PG will come into play depending on other clauses. In most, or majority, of cases, senior lender does not allow junior lender to call default w/o their permission. In this situation, I think, as a non-lawyer, the PG has no value. However, avoid a killer clause called Confession of Judgement in Seller Note in one of threads on Search Funder.
https://www.searchfunder.com/post/confession-of-judgement-vs-sellers-notes-dont-do-it

3 months ago | like reply | 1 like

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