When a business is sold using owner financing, a note is created, among other documents. The note might have been created instead of or in addition to getting bank financing. Owner financing has always been big in the business sale area, but the difficulties and expanding number of forms from the SBA have only helped in the creation of more notes. One industry website estimates that almost 90% of all successful business sales used owner financing for at least part of the purchase price.
This business note specifies the details of how and when the payments are to be made, as well as what happens if they are not. If you are carrying/holding a note, you have the option of either holding on to it and collecting the payments or selling it to a business note buyer. Even better, you can choose to sell the full note or sell just some of the payments on the note.
One challenge of selling business notes is that prospective business note buyers are more picky than buyer of other notes like those related to real estate. This is because the collateral is generally weaker, in that the business note buyer is not going to want to step in and run the business if the buyer defaults. The criteria that we use are:
- At least a 20% down payment by the buyer, which needs to be in cash.
- One or more payments should have been received from the buyer.
- The buyer has personally guaranteed the note and has a decent credit score.
- The business is profitable and had enough cash flow to service the debt over the preceding year.
- The note is fully or mostly amortizing over six years or less, and is in 1st lien position.
Regardless of the industry in which the business participates, the business note can be marketable if it meets most of the above criteria. We do have a slight preference for those businesses that have small transaction amounts and have the proven ability to weather economic downturns, but there are no absolutes in where we buy.
You can get started by calling us or completing our easy online form. Our phone number is 1-800-634-4697.