The buyer wants a seller note but is insisting on a non-recourse structure, meaning we cannot go after their personal assets or the parent company if they default. How do we negotiate corporate guarantees and asset pledges to make this note secure?

Question

Tyler Smith · Accepted Answer

A non-recourse seller note is essentially an unsecured promise to pay, leaving you with zero leverage if the buyer defaults. If the acquisition fails, the buyer can simply walk away, leaving you with nothing.

To secure your seller note, you must negotiate strong collateral and recourse terms:
- A parent company guarantee to ensure you can pursue the ultimate parent entity's assets in the event of a default, rather than being stuck with a shell company.
- A first-priority lien on the specific assets of your old business, including the accounts receivable, inventory, and intellectual property, backed by a pledge of stock.
- Financial covenants that trigger a default before the cash runs out, such as if the company's debt service coverage ratio falls below a safe threshold.

Never accept a non-recourse note. If they want you to fund their purchase, they must back it with real collateral.