This allows the seller a speedier solution than foreclosure. If the terms of the seller note are not met, the seller can vote to require that payments be made and can even vote to replace management of the business. This threat is usually enough to guarantee seller note payments are not missed. Life and disability insurance policies on key members of the buyer's new management team are less frequently used methods of adding security to a seller-financed transaction. Term life insurance is available at rates which are relatively low, so this is most common.
Disability insurance is used less often because it is more expensive.
The seller will typically want the business to pay for these policies up to the amount of the seller note. These policies stay in effect until the seller note is paid. Restrictions on how the business is run are sometimes added. These restrictions can be in the form of requiring that the new owner preserve certain account or employment relationships, that certain operating ratios of the business are maintained, that the new owner's pay is limited, or that other important operating benchmarks are met until the seller note is paid. Most sellers won't use this form of adding to their own security as a creditor.