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Selling your business note can be relatively painless if you are informed and knowledgeable about your financial options. MyNoteMarket has collected information about the business note sale process and resources to help you research your options. Use the Education section below to quickly understand: Once you have gone through the Education section, use the additional Resources to research potential buyers, review current news and blogs, and get links to tax and legal sites. |
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How To Sell a Business Note |
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1) First you should determine your current and future cash needs and financial condition. Since you can sell the entire note or just a partial amount, you should have a specific required amount in mind before you contact any buyers. It is recommended that you consult a financial advisor or lawyer. *Tip: You will receive more cash for 1st lien notes versus 2nd lien due to the higher potential recovery rate for 1st liens.
*Tip: While you can sell only part of your note, selling the entire note is generally easier, less confusing, and preferred by many buyers. 2) Gather all you business note documentation. While you will not need most of the documentation to get an initial quote, it is good to have it ready should you decide to sell your note. Documentation for an initial quote may include: - Business type, location, pictures
- Sale price, loan amount
- Payment amount, interest rate.
*Tip: There is no need to send all your document ion for a quote, be wary of requests to gather too much information(like your Social Security information) for a initial quote. |
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How Business Notes are Priced |
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Business Notes are priced by discounting the future payments by a discount rate. This discount rate can vary widely from 7% to 15% or more depending on the buyer. The lower the discount rate, the more you should receive for your business note. There are many factors in determining what discount rate to use, here are the most common: - The condition, type, location, and valuation of the business
- Business history including: years in business, cash flows, etc
- Loan to value ratio
- Maintenance and proper insurance
- Payment history and seasoning of the loan
- Interest rate on the note
- Credit rating of the business owner or payment payor
- Business experience of the owner / payor
- Buyer's experience and funding sources
- Market conditions
Each potential buyer will individually determine how these factors are used to arrive at a price for your note. Pricing can vary greatly by buyer. Check out these links for more information: |
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Terminology - Business Notes |
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Here is some basic terminology for business notes: Appraisal - An estimate of business value based upon a factual analysis of a specific real property. For more info see: Real Estate Appraisal - Wikipedia Appreciation - An increase in market value of business. Equity - The value of real property over and above the liens against the property. Also called Owner's Equity. Lien - A lien is used as a form of security interest in real property and generally secured a debt or other obligation. It is attached to the title of a property and ensures the lien holder gets paid for any debt or obligation. For more info see: Lien - Wikipedia Loan to Value Ratio - Is a calculation, usually expressed as a percentage, which represents the amount of the first mortgage loan divided by amount of the appraised value of the business. For more info see: Loan to Value Ratio- Wikipedia Purchase Agreement- Is a legal agreement or contract that details the terms, price and conditions for the purchase and sale of a business. For more info see: Real Estate Contract- Wikipedia Security Agreement- Is a legal document or section of a document the describes a lender's security interest or collateral in the business and assets. This agreement secures a right of lender to repossess the collateral if a debt or obligation is not paid. For more info see: Security Agreement- Wikipedia Uniform Commercial Code- Is a set of laws that regulates certain commercial transactions, usually the sale of commercial goods. For more info see: UCC- Wikipedia |
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Due Diligence - Business Notes |
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There are numerous potential buyers for your business note, it is hard to choose the right one. But with a little due diligence(research), you can select several that are reputable and right for you. One important point you should be aware is whether you are dealing with a principal or broker. If you a dealing with a principal, you may get better pricing due to the absence of the broker fee. Most principals use brokers to bring them business but there is a definite cost associated with this added layer of service. But brokers can be valuable in finding multiple buyers and could potentially get better pricing even after factoring in their fee. The buyer should pay the broker fee, not you. Here is a guide to help you choose the right buyer: - How long have they been in business?
- Is their contact and business information verifiable?
- Are they bonded or insured?
- What is their due diligence criteria?
- How is their Better Business Bureau rating?
- Do they handle your type of note?
- How many note purchases do they do a year?
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Biz Notes
