Selling a Business: The Business Note Option 

Selling a Business: The Business Note Option 
May 16 13:05 2018 Print This Article

A business note is created when an owner sells their company and seller financing, or carrying back paper, occurs. This means the note is secured by both the business and other assets. Many businesses involve some type of seller financing. This doesn’t mean the seller would prefer cash. It just means the seller would accept monthly payments over the course of months and years until the business note is fully paid.

Selling a Business Note to another Company is an Option

The business owner has an advantage to accepting a business note. The noteholder can sell all or a portion of the note to businesses like for a cash. Selling a note does not involve acquiring a loan. They receive cash. The note’s value depends on many factors including the payment history, rate, payor and terms of the note. If the company is interesting in paying for the business note, an underwriter can put together a package within 24 to 48 hours.

Selling the Business Note for as Much Money as Possible

A seller always wants a maximum return on a business note. Some factors go into getting top dollar for a business note. For example, the note’s positioning. The business note should be the first lien on the company. If the business note is the second lien, it will be harder to sell the note. If a note buyer does agree to acquire it, the seller will receive a lot less money.

The term “seasoning” refers to the age of the business note. Seasoning is another factor in getting more money from a business note. A note buyer wants to see that a person who purchased a company from a seller has made some payments. This seasons the business note. The minimum number of months a company wants to see is about two months. However, the longer the seasoning, the more money the noteholder may receive.

Another way to get more money for a business note, the interest rate should be at least 7 percent or higher. In addition, a business note should not have more than 60 monthly payments. Both factors rate factors will maximize the money received from the business note.

A Seller isn’t Required to Sell the Entire Business Note
It is important to point out that a noteholder is not required to sell the entire business note. They can sell part or a portion of it. For instance, the noteholder can sell a portion of the note and retain future income from the rest of the business note.

Also, the noteholder can repeat the process of selling the business note if they’ve sold a portion of it. For example, the noteholder may sell 20 percent of the note to a company. They retain 80 percent of the note. They can sell another 20 percent of the note to the same or different company. What most noteholders don’t know is that they may receive more money the second time.

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