Seller financing

searcher profile

November 14, 2020

by a searcher from Columbia University - Columbia Business School in Princeton, NJ, USA

How Is Seller Financing Usually Secured? Currently negotiating a deal with 50% seller financing. Does it require a PG just like a traditional lender or secured based on assets of the business? What's a typical structure?

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commentor profile
Reply by an intermediary
from Indiana University at Bloomington in Carmel, IN, USA
IF you can avoid it, great but as Ron states if I was the seller, then I would want it. My clients usually have to guaranty less than 1/4 of the time. If it is SBA, then you can usually finance most of the loan amount, if not all (90% with 10% down), always good to have some note in there though. As the % of Seller Note goes up then the PG % goes up. Some of it depends on the buyer, if there is little to no liquidity of the buyer, then the seller may only want the Company to guarantee with some protections on excessive distributions or salary.
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Reply by an intermediary
from Wake Forest University in Winston-Salem, NC, USA
We see seller finance almost always secured by a security agreement, a personal guaranty, and if the seller finance is large enough, life insurance. If there is a bank loan, particularly an SBA loan, in front of the seller finance, the seller finance is in a deep second lien position with very few rights or options. With an SBA loan, they have to agree to the SBA Standby Creditor's Agreement. Once you read that, you won't begrudge the seller's desire for a PG -- as it is basically their only resource in many cases.
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