The buyer is pushing for a substantial seller note but is refusing to include a standard acceleration clause upon a change of control of their parent company. How do we protect our repayment rights if they sell the business?

Question

Tyler Smith · Accepted Answer

A seller note is built on your trust in the current management team and the operational plan you have agreed upon. If the buyer sells the company or their parent entity to a new group, that trust is gone, and your risk profile changes entirely. A change of control acceleration clause is a non-negotiable protection that forces the buyer to pay off your outstanding note balance immediately upon the sale of the business. If the buyer refuses to include this clause, they are likely planning an early flip or a recapitalization that will push your debt further down the capital stack. You must explain that you are comfortable financing their operations, but you are not comfortable financing an unknown third party. If they still resist, offer a structured compromise. You can agree to waive the acceleration only if the acquiring entity has an institutional credit rating above a specific threshold and agrees to fully guarantee the note. Alternatively, you can demand a significant prepayment penalty if the note is not paid off at the time of the sale. Do not allow them to transfer your note to a highly leveraged buyer who might default on the payments. Your financial security depends on holding a hard line on change of control acceleration, ensuring you get paid in full when they cash out.