Is it typical to need to personally guarantee seller financing?

searcher profile

September 30, 2024

by a searcher from McGill University in Portland, ME, USA

Hi all - I'm finalizing the LOI on an acquisition of a small pet services brick and mortar unit (1st acquisition as part of a broader roll-up plan). We included seller financing to ensure the seller would be invested in the outcome over the coming years but they are insistent on a personal guarantee for the financed portion. Is this common? Have others had to do this in order to secure seller financing?

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commentor profile
Reply by a professional
from University of Michigan in Detroit, MI, USA
Hi ^redacted‌, this is fairly common. If you are relying on SBA debt (which I imagine you are), I wouldn't get too hung up on it. Your SBA lender will require: (1) a PG and (2) that the seller note is subordinated to the the SBA debt. As a result, the seller's PG isn't worth that much.

Focus your energy on negotiating the best terms possible for the seller note. Although it isn't worth that much, the PG is still a concession (sellers don't always get it), and can be treated as such during negotiations.

I hope that helps. Let me know if you want to discuss further. DM me here or reach out directly at redacted
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Reply by a professional
from University of Notre Dame in New York, NY, USA
I’ve seen this in a lot of deals recently, your PG on the seller note would be subordinated to the SBA PG (and your bank will likely require a subordination agreement signed by the Seller).

Your attorney can build in additional protections into the note to help offset the additional risk you’re taking on by PGing the note. Happy to chat through if helpful (DM me or email me at redacted
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