Seller financing collateral?

by a searcher from Georgia State University

7 months ago

Hello,
Does anyone have suggestions on what to use if a seller requires collateral on a long term seller note? I was thinking we could include in the agreement that the business reverts back to them if we fall more than 60/90 days behind their payments. Does anyone else have any other ideas/suggestions?

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professional from Villanova University - Villanova School of Business

Hi ^Searchfunder member‌ - lots of great info above and I agree that if there is a senior lender, they will need to sign off on this and the note will be subordinated. However, the structure proposed in your post can have a significant negative consequence if for instance the non-payment occurs when the note is already 90% paid down. Safeguarding against the automatic reversion of the business is crucial, and utilizing tools like a stock power to establish a stock pledge against the shares can be an effective strategy. However, it needs to be limited so that the pledge decreases over time as the loan is paid down so that in the event of a default, the lender would receive a percentage interest in the business relative to the amount still owed and outstanding. I'd be happy to discuss this further. Feel free to send me a DM or schedule a complimentary consultation call through the link in my bio.

7 months ago | like reply | 1 like

intermediary from Clemson University

A UCC-1 filing accomplishes this. I would also expect the buyer and spouse to execute a personal guarantee.

7 months ago | like reply | 1 like

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