How To Sell a Business Note
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.
3) Search for a buyer of business notes. It is very important to feel comfortable with potential a buyer. Please see "Due Diligence" for tips on selecting a buyer.
There are a number of ways to find a potential buyer:
- talk to your financial advisor or lawyer,
- use this site to identify potential buyers,
- search the Internet,
- talk to friends, family, or acquaintances who have sold a business note.
5) Get multiples quotes for your business note. Potential buyers will generally give you a free analysis and no obligation quote for your note. They should explain all potential options and provide an amount that you will receive. While the highest quote may be attractive, you should consider all the factors together. These factors include: reputation, experience, your comfort level, etc.
*Tip: Ask the buyer up front about all costs and who is responsible for paying them. Generally all fees should be included in the quote and paid by the buyer.
*Tip: Beware of potential buyers who ask for a fee up front. There should be no fee for a quote or analysis.
6) Once you have selected a buyer, you should get a contract (purchase agreement) with the buyer. This contract should outline the terms and conditions of the payment and agreement.
*Tip: It is strongly advised that you have your lawyer review this contract.
*Tip: You should not be required to guarantee the note which means the new note should be "without recourse or non recourse". Meaning you are not personally liable for the note re-payments, if the business owner defaults.
*Tip: Make sure the potential buyer has checked the credit of business owner early in the process to avoid any surprises later.
7) Now the information gathering process will begin. The potential buyer will request specific information about your business note. It is recommended that you have as much information collected before you begin this process. This process can last between 2 to 7 days.
*Tip: Request to see the buyer's privacy policy.
Information requests can include:
- Original note or contract, not a copy
- Business Purchase and Sale Agreement
- Closing / Settlement Statements and Escrow Instructions
- Documentation of down payment
- Proof of insurance on the business
- Security Agreement for note
- Any UCC (Uniform Commercial Code) Filings
- Copy of Lease and landlord approval
- Copy of all business licenses
- Franchise Agreement (if applicable)
- Exact location, description, and pictures
- Contact information for servicing / collection agent
- Business owner's (payor's) information, resume
- Business financial books for at least 2 years.
- Landlord, insurance agent and/or franchise information
- Lawyer's information
- Business history include any prior names.
8) Once the buyer has all the required information, they will begin a due diligence process. This process usually lasts between 2 to 6 weeks, depending on the buyer and complexity of your note and business.
*Tip: Ask the buyer up front about the process and time to completion. Be cautious of very short process times.
9) When the due diligence is complete, the buyer will generally issue payment within 2 to 7 days.
Congratulations! You sold your business note.
*Please note: these are general guidelines, all situations are unique and vary by state and company.
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