The note business involves the buying and selling of promissory notes, and includes investors, brokers, and other professionals who specialize in evaluating, purchasing, and managing various types of notes, often for real estate transactions.
Business notes are an alternative financing tool used by business sellers to make a sale. They involve a substantial down payment and payments that are paid over time with interest.
Selling a note can provide you with a lump sum of cash to start a new venture or offer tax advantages. A partial purchase buy-out may also be beneficial to you.
How to Sell a Business Note
A business note is an arrangement where a seller of a company carries back part of the purchase price for the buyer. This type of financing can allow buyers to purchase a business without the high rejection rates or lengthy underwriting process of a traditional bank loan.
The terms of the business note are negotiated between the seller and buyer. The buyer usually makes a down payment and pays interest on the balance of the purchase price in monthly payments. These payments can resemble smaller monthly payments, quarterly payments that are more substantial or annual payments based on profitability.
It’s important to have a solid record of paying the business note in order to sell it. You’ll need to submit several documents related to the sale, including a copy of the promissory note, a copy of the asset purchase agreement and any legal documents required by your state. Typically, the business note buyer will conduct an asset verification and a risk assessment to determine whether or not to move forward with the purchase of the business note.
Partial Purchase Buy-Out
A partial purchase buy-out is an alternative to a full purchase buy-out. This option allows you to sell a portion of your business note to a note buyer for a lump sum payment. In this case, you would still pay a discount rate, but it would be less than with the full purchase buy-out. This method may also reduce your taxes. A partial purchase note offer typically involves a written servicing agreement, which should be reviewed by competent legal counsel prior to closing the sale. Both parties must agree to the terms of this agreement. Our team of note buyers can help you with this process.
Finding a Buyer
Once you’ve decided to sell your business note, it’s important to find a reputable business note buyer to make the sale. A business note investor will review all of the relevant documentation before committing to purchase the business note, and the seller should prepare documents that meet their underwriting standards.
For instance, a business note buyer will want to know the length of time that the buyer has owned your business, and they’ll likely require a history of consistent monthly payments from the business. A high credit score is also helpful, as it makes the buyer more attractive to a note buyer.
It’s also important to document all of the payments made on the business note, as this will help you determine a fair price for the business note. Depending on your needs, you might choose to sell only the balance of the business note or the entire payment schedule. In either case, the resulting cash can be used for anything you choose, including starting a new business or paying off debts.