Security on seller notes

searcher profile

October 01, 2024

by a searcher from Charles Sturt University in New Jersey, USA

What are normal/market securities that buyers allow for to secure a seller note? Is it normal for seller to ask for second position UCC lien on business assets and lien on company stock as security towards their note?

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Reply by a professional
from University of Virginia in Holmes, NY 12531, USA
Decent amount of variation, and some of it will depend on whether the sellers are totally exiting (and if so, why). *Most* seller notes are unsecured in the UCC-sense. I’’d say that it’s mildly more common for a seller to ask that the note be guaranteed (from seller POV, preferably personally) - but certainly one sees conventional security provisions. If there’s a debt facility, most likely ask is second lien. Glad to discuss further.
commentor profile
Reply by a professional
from University of Michigan in Detroit, MI, USA
Agree with the other comments. This is fairly common--it doesn't always happen on searcher deals, but certainly won't raise an eyebrow. It's also nothing much to worry about as a buyer. As you state, it's subordinate to the primary debt (usually an SBA loan).
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