Met with a broker yesterday who kept saying buyers will "just assume" my PG on the lease and the equipment loan. That seems insane to me. If I sell my bakery, am I really supposed to stay on the hook for five years of rent while the new owner runs it into the ground? How does this actually work in practice?
Selling
Why buyers must replace your personal guarantees
It doesn't work. That's the point. A PG is not a transferable asset, it's a personal liability. Buyer can't 'assume' it unless the landlord or lender explicitly releases you and substitutes them. Broker is either lazy or hoping you won't push back.
Tell the buyer to get their own credit and sign a new lease. If the landlord won't release you, that's a red flag about the property or the buyer, and you price it in. Also get an indemnity from the buyer, though good luck collecting if they fold.
This came up when we sold our print shop. The buyer's lender wanted our PG to stay for 18 months as a 'transition' guarantee. We said no, they blinked after two weeks. Sometimes it's just a negotiating position.
Can you explain what PG means? I'm guessing personal guarantee but I've only ever leased a small office.
Yes, personal guarantee. You're personally liable if the entity stops paying. On a commercial lease or an SBA loan it can follow you for years after you sell. Not something to hand-wave.
Counterpoint: if the buyer needs financing, the lender may insist on the seller staying on the PG for a while because the business has no history under new ownership. Refusing outright can kill the deal. But 'stay on it forever' is a no.
Fifteen minutes of frustration for me too. The broker who told me 'buyers will just assume it' was the same guy who suggested I throw in my delivery van for free because it'd 'build goodwill.'
Get a lawyer. The lease release is a separate negotiation from the sale and landlords smell desperation. Also check whether your equipment loan has an assumption clause at all. Ours flatly prohibited it
Equipment loan paperwork says 'no assumption without written consent of lender.' So the broker's 'buyers just assume' line is already dead on that that one. The lease is the bigger problem because the landlord is a guy I've known for fifteen years.
A fifteen-year relationship might get you a release with a replacement guarantor. Might. But don't confuse friendship with a signature.
Also, watch for a 'springing guarantee' where the buyer's PG only kicks in after default. Sounds harmless, usually isn't. And don't let the closing date pressure you into signing a side letter that keeps you on the hook.
Has anyone actually gotten a landlord to release a PG without a new tenant guarantee? The last one I dealt with wanted six months of the buyer's bank statements before he'd even discuss it.