Thoughts on personal guaranteed seller note?

searcher profile

February 20, 2024

by a searcher from King's College London, University of London in Dallas, TX, USA

Seller is asking for personal guarantee on a seller note (no standby, 10%) - how common is this?

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commentor profile
Reply by a professional
from American University in Irvine, CA, USA
Yes, I agree with the previous comments. However, from the Seller's perspective, we like to provide for set-off rights in the documentation, because, theoretically, you could have concurrent indemnification or other monetary claims against the seller for breaches of the acquisition agreement, but without a right to set them up, the guaranteed note obligations may be much more quickly litigated and enforced than breach claims in the APA, resulting in the buyer providing more capital to the seller to fight the underlying claims. Setoff rights would allow a dollar amount to be setoff against an amount due under the note, by virtue of the Buyer's claims against the Seller. At a minimum, if you can get an accelerated resolution of the Buyer's claims, through mediated settlement or binding arbitration, and have the Seller's note payments stayed until all claims are liquidated, it will allow for a final financial resolution that is less one-sided.
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Reply by an intermediary
from The Johns Hopkins University in Gainesville, FL, USA
To ^redacted‌, Yes, I agree that higher risk should require a higher interest rate. But 1) rates are negotiable; 2) the Seller has intimate knowledge of the business, and thus may perceive risk differently than a bank; 3) if the Seller has done their due diligence effectively, see #2; and 4) many Seller's are happy to accept a rate somewhere between the Lender's rate and the highest rate they could get if they deposited their funds at a bank. I also agree that, if a PG is important to the Seller, then a Buyer who doesn't want to sign one isn't the right Buyer. Perhaps I should have said "potentially negotiable."
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