Business Notes

85% of business sellers are forced to offer owner financing. Why? Banks are leery of offering loans to buy small to mid-sized businesses because of historically high failure rates. Owner financing generates a business promissory note with the business and all its assets serving as collateral.

What you might or might not already know is that all or part of this note can be sold to a funding company at a discount for a quick cash return, without having to wait years to get all your money out of the deal. If you are more interested in getting a steady monthly payment plus interest, this is probably not the best option for you.

One thing that is very important to understand is that buying business notes is much riskier than purchasing other types of notes or in factoring accounts receivable. Business notes are discounted more by funding companies to give them a higher rate of return on their investment to offset the huge risks involved. This is something that absolutely needs to be taken into account before you think about selling your note. Another thing to keep in mind is that funders will not buy a balloon if it is part of promissory note, because of the risks involved. That being said, it is still a great opportunity to take advantage of because it will get you immediate cash without all the risks and the administrative and collection hassles.

1. Business has a lot of assets such as machinery or equipment.
2. Business has a good location.
3. When selling the business, you received a minimum 30% down payment and/or have 12 to 18 months of payment history on the note.
4. Note is in the first position.
5. Buyer credit must be strong. Typical minimum is 650 FICO score.

These are simply guidelines. All business notes will be considered, but the more your note fits the above requirements, the more likely it will be that the funding company will offer a higher price for it.

1. Franchises.
2. Service based businesses whose main value is the service provided. These usually don’t have enough collateral to secure the note.
3. Businesses with environmental issues tied to them.

If amount of the business note is under $100,000, the funding source will require personal obligation - that the buyer signed the note personally and guarantees to pay it. If it is over $100K, the funding sources will consider corporate guarantees.
The entire process of reviewing your information and supporting documents, finding an appropriate funding source, and getting you a quote will take anywhere from several days to several weeks. During the due diligence process, there is a good chance that the funding company will ask for your buyers' tax returns and profit and loss statements.