Legal Question in Business Law in California

Re: Selling a small business and carrying part of the loan

If the buyer agrees, you can agree to put a deed of trust on their house to assure payment; if they don't pay, you can foreclose. But most buyers won't be interested in that possibility. Do they have other real or personal property that can be used for security? It's going to come down to how much you trust the buyer versus whether they will be willing to give you security for the note.

Feel free to call me to discuss this further.

Re: Selling a small business and carrying part of the loan

You can ask for anything you like, what you will get is determined by negotiation. It sounds like you would be well advised to have experienced counsel assist you in protecting as much as possible the risk of loss of your money. UCC liens, guarantees, deeds, etc., are all available to you if properly done. Contact me if interested.

Re: Selling a small business and carrying part of the loan

If you really want to get paid, the the buyers really intend to pay you, their obligation (a promissory note, probably) should be secured by a well-documented absolute personal guarantee binding each of the buyers, and their spouses, jointly and severally, for the entire sum. In addition, you should have deeds of trust on all real estate any of them owns, and a security agreement pledging all their assets, and all assets of the business sold, as collateral, including after-acquired assets such as receivables and inventory not now in existence.

If the business is a corporation, all the shares of stock sold should be collateralized.

The security instruments should be recorded with the county recorder or filed on UCC-1s with the Secretary of State.

Your business-sale agreement should provide for comliance with the Bulk Sales Act, Commercial Code sections 6101 to 6111.

Ten years is a long time to extend credit to a business buyer. This increases the need for collateral and security agreements. You are generous to give them that long to pay.

I would also make sure that the sale agreement has the buyers reciting that they have had ample opportunity to perform their due diligence, and that they agree that their obligation to pay the full purchase price is absolute and not conditioned upon future business results in any way whatsoever.

Be careful that the interest on your promissory note is not usurious.

If the value of the business exceeds $100,000, I strongly recommend retaining a business attorney to draft the documents mentioned and to review the entire sale deal for problems (your contracts regarding leases, employees, franchises and licenses are the most likely to result in post-sale problems, in my experience).