Seller's note payback risk probability

Thanks ^Searchfunder member‌.

There are lots of factors that go into a Buyer paying back a seller note from business acumen to business viability to economic factors. The EV of the business is not impacted by the use of a seller note in a transaction, only its price. EV and purchase price are mutually exclusive, rarely match, and are relative to the valuator. In other words, there are multiple values of a business depending on whose perspective is being considered.

The characters of the Buyer and the Seller are the highest predictors of successful payback. If one or more have a track-record of not honoring their commitments (i.e. late pays, agreement non-compliance, criminal history, etc.) then the risk for both is higher. Two honest, well-intentioned parties will likely succeed in honoring their commitments to one another even if circumstances present obstacles to execution.

The risk of payback on the seller note is determined by the seller based on the buyer's background, deal structure, credit score, etc. If there is a lender in first lien position on all the assets, then the seller must have strong belief that the seller note will be repaid by the buyer. In order for a seller to "take back" the business, the lender in first lien position would have to be paid off before the seller could get the business back. This is not likely something the seller would want to do since the seller essentially would have to "buy back" the business from the first lien position lender.