The buyer is pushing for a seller note representing thirty percent of the purchase price, but they have no personal assets or parent company guarantees backing it. How do we secure the note to ensure we actually get paid if the business performance tanks?

Question

Tyler Smith · Accepted Answer

Accepting a seller note without strong security is equivalent to giving the buyer an interest-free, unsecured loan with all the risk on your shoulders. If the business performance declines post-closing, an unsecured seller note is the very first thing the buyer will stop paying. To protect your wealth, you must secure the note with hard collateral. Insist on a first-priority security interest in the specific assets of the business you are selling, or at least a second-priority position behind their senior bank lender. This security interest must be filed via a UCC-1 statement at close. Additionally, demand a stock pledge agreement, which dictates that the equity of the company is pledged as collateral. If the buyer defaults on the note, the ownership shares of the business immediately revert back to you, allowing you to step back in and run the operations using your established EOS framework. You should also push for a parent-company guarantee if the buyer is a shell company or a special purpose vehicle set up by a private equity group. If they refuse to provide collateral or guarantees, treat this as a major red flag. Allocate dedicated Thinking Time to decide whether to walk away or demand a higher cash-at-close component to offset the unsecured credit risk.