Is it possible to structure a business loan for purchase of an existing business so that if the business I buy is NOT as represented, i.e., generates far less net earnings, and I default on the loan, I will not lose my home, car and other already existing assets? This has happened to me already. I bought a small business which was far less lucrative than I was led to believe. Fortunately, I did not have a home that could be foreclosed upon to satisfy the business loan, but it was a total sham and I took it in the shorts. I do not want to go through that again. I'm contemplating selling my existing home in Hawaii, moving to Oregon or Washington to purchase another home, and also purchasing a small business. I do NOT want to lose the home if the business does not generate enough to live on and pay off debt service.
1 Answer from Attorneys
First, acquire the business by creating a new corporation, with the corporation taking out the loan and not yourself personally. If that is not possible, and you can get a loan only by pledging your personal assets, then write the business sales agreement with the seller guaranteeing a certain level of net earnings for a certain number of years, with liquidated damages in the amount of the promised net earnings minus the actual net earnings. Then, if the net earnings do not happen, you sue the seller. Of course, the seller may be insolvent or bankrupt by then. And it is not likely that any seller would agree to that.
At least put in the sales contract that the seller warrants that the business has been earning xxx in net income per year and that the seller is liable to you for damages, if his warranty is untrue.
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