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When Someone Wants to Sell a Business Note, Look for These 5 Things

Just a few days ago, I had another note broker (who has been a hard money lender for years) call me with a note that wasn’t secured by real estate . . . it was secured by a dental practice.

“Can you do anything with a note that’s not secured by real property?”

The answer is, “Maybe.”

With the lack of financing available for buying businesses, many business owners are offering terms (offering seller financing) when they go to sell their businesses.

How they engineer the transaction and put the paperwork together will make all the difference in the discount they will take, and if they can even sell the note at all. 

Sadly, most find this out a bit too late . . . when they are trying to sell their note, not when they are creating it in the first place.  I wish I could send a proclamation out to all the business brokers out there in the Queendom who are representing sellers . . .

“Hire a note professional to protect your clients!”

One note holder was extremely frustrated because when I saw his business note, there were several things that made it impossible for me to buy more than just a fraction of his note (a small partial).

For one, the math in the note was wrong, and there was an entire year missing between the note payments and when the balloon was technically due . . . whoever put the note together miscalculated by a year.

To make the pain even more acute, the note seller had specifically asked his broker if he knew anyone who could help put the note together, and he said, “no.”


As a real estate professional, that sounds like a potential liability.  When you leave your client hanging out in the wind like that, costing them thousands in lost profits and/or steeper discounts, you have angry past clients on your hands . . . yikes.

Before you get in too deep with someone, here are some of the most important issues determining if a business note can be bought or not:

  1. If the note is signed by an entity, such as a corporation or LLC, is there a personal guarantee?  Without one, it will be almost impossible to sell the note.
  2. Is there a lot of protective equity?  Large down payment and/or a couple of years of seasoning (they can be bought with as little as 2-3 months’ seasoning, but more is always better)
  3. What is the Payor’s credit score?  It’s tough to sell a note where the credit score of the person making the payments is less than 650.
  4. Does the business cash flow well enough to easily service the debt payments? 
  5. Is the note crafted and signed properly, and is it secured?  There may be no real estate, but there should be a Security Agreement (and usually a UCC-1) showing that the note is secured by business assets such as equipment, leases, etc.

If you have a business note for sale, feel free to give me a ring, but don’t waste your time working on notes that just don’t have the possibility of going anywhere.


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