Every year thousands of business owners sell their companies.  The reason vary but the most common one is due to boredom, burnout, and stress. Many owners are no longer feel challenged or are interested in the day to day operations and redundancy of the business leading to boredom and dissatisfaction. Other reasons may be that some owners just feel it is time to retire. Due to not properly planning for the future of the business to have someone take over, the owner needs to sell in order to retire. There are also times when illness and family problems may sometimes arise and the priority has shifted elsewhere away from the business. This can sometime occur just a couple of years into the start of a business.

For any business when a loan is used and still exists, a business promissory note is created. The note is basically a two-party promise to pay a specific sum on demand, at a certain, or determinable date. The note sets out the repayment terms to the lender whether the lender is commercial, (bank), friend, or relative.  It will state the amount owed, what the interest is, the length of time of the loan, when and where payment is due and other details.  These notes are negotiable, meaning they can be transferred, sold, or assigned.

When a business owner needs to sell, sometimes waiting months, or years for the perfect buyer who can buy the business is not an option.  This is where seller carry financing comes into play.  

If a seller and buyer of the business have found each other but the buyer is short on funds, there are times when the seller will offer financing to the buyer to make sure the transaction continues.  In seller carry financing, the seller acts like the bank or lender and carries the mortgage on the business.  It is offered as a means to get the business sold and the deal closed. Many times, this allows the business to be attractive to a wider potential pool of buyers. The seller many times has a hand in the continuation and success of the business sold.

Once the transaction is completed, the buyer will then pay down the loan each month to the seller who holds the note from this transaction.  There are times when this original business seller, now note holder, sometimes is ready to move on. Perhaps full  retirement is calling,or cash is needed. This business note can be sold to an investor. This is where the business note buyer/investor, comes into the picture.

Business note buyers act as the new lender. The seller gets the lump sum of cash. The investor gets the endorsement of the business note receiving payments from the new business owner.  Everyone wins in this 3 way relationship.

What Business Note Buyers (Commercial Note Buyers) Look For

There are some guidelines that a note buyer/investor will need if this is the right transaction for them to proceed.  The note buyer will want to know what position is the lien.  Ideally, note buyers want to be in the 1st position on the business lien.  Second position liens are sometimes purchased by note buyers, but at a much higher discount.

Business Note buyers like to see that the business buyer has made some payments on the business. This is called seasoning.  The longer the seasoning, the less the note will be discounted.

Interest rates  of 7% or higher is ideal.  The term should not be more than 60 months in order for the buyout to make financial sense.

A high down payment on the sale will bring a lower discount price on the note. Down payments of 30% of the purchase price is what note buyers look for.

Investors look for types of businesses that are expected to grow in the upcoming months and years.

Note buyers look to see what type of collateral was used to secure the carry back loan. Office and furniture equipment does not bring a lot of cash should the business close unless it is a type of business such as a auto repair shop with a lot equipment.

The credit rating of the payers and the ability to pay in taken into consideration as well as the businesses  ability to be profitable.  If the business fails, there will most like be little to no property, only assets such as equipment which would probably not recoup the initial investment.

What Business Note Sellers Should Expect When Selling Their Note

• Discounts on a note should not surprise the note seller.  The discount ranges from 10 to 30 % of the face value of the note. The factors in determining the discount are seasoning, interest rate and terms, and downpayment amount. When selling a business, the reality is that the seller should expect up to 30% off of what they want to receive. After all, the buyer is assuming the risks now in purchasing the business note.

There are also a list of documents required to close the business note.  The length of time it takes to close a business note is determined largely in documents getting in.

Some of the required documents needed by note investing companies are the following:

• UCC-1 Financing  Statement- This is to establish priority in case of debtor default or bankruptcy. It is to give notice who has an interest in the personal property of a debtor. It should be recorded at the State and County and is a public record.
• Signed Note of Personal Guarantee. This is different from the actual business note. The business note is the written contract, signed by the borrower to repay a debt. The personal guarantee means that the person, not the business is personally responsible for the loan.
• Sales Purchase Agreement. This legal contract finalizes the interest for both the buyer and the seller and how exactly the transaction will proceed, what is included or excluded in the transaction. It determines the details of the sale.
• Signed Security Agreement. The document is a contract which assigns to the lender a security interest and right in the collateral.
• Covenant not to Compete. The seller of the business note agrees not to enter or start into a similar profession or trade as the selling business.
• Settlement or Closing Statement.This itemizes all the services and fees that are charged in the purchase of the business.

Other documents that might be required include a franchise agreement if applicable, or an Operating License, such as a Liquor License.

There are many note buying companies we hope you decide to chose us when you sell you promissory note. We are not note brokers we are business and real estate note investors/buyers. We buy from our own funds and can close quickly on your note. We believe we are one of the countries top business note buyers, give us a shot to prove it to you.