Business Notes – Frequently Asked Questions
Each year thousands of corporate / privately held business notes are liquidated in this country. Here are some of the most often asked questions we receive from our clients.
Q: How much is my note worth?
A: The value of your remaining payments is based on a variety of factors such as:
- The type of business securing the note
- Down payment made at closing
- Credit worthiness of the corporation or individual making the payments
- Seasoning (payment history of the payor)
- Financial history of the business in question
- Buyer experience in this type of business
Armed with an initial submission worksheet we can provide a market valuation as to the amount of cash the note is worth in its entirety, as well as several creative suggestions on pulling capital out of the future payments without giving away the farm.
Q: What information do you need to evaluate my business note?
A: Initially, just the information indicated on our submission worksheet. Nothing else is need, up front.
Eventually, we’ll need to see:
- Copy of the Promissory Note
- Corporate tax returns on both the business that sold and the Debtor obligated on the Promissory Note
- Copies of the UCC-1 and Chattel Security Agreement
- Bill Of Sale, etc.
Basically, all of the documentation that was created at the time of the sale.
Q: When can I expect to hear back from you?
A: You can expect to hear back from us within 1-2 business days once we get the worksheet (completely filled out, no blank spaces!)
Q: How soon will get I get paid?
A: Two to three weeks is typical, assuming all documentation is in order and readily available. We close as fast as humanly possible. However, certain aspects are out of our control (appraisals, County and State recorders, UCC searches, document prep, etc.)
NOTE: Very important. We do not start our due diligence process until we receive all the documents/paperwork we have requested.
Q: Why would I give up a discount when selling my business note?
A: Great question! Let us give this to you straight here:
Economic factors like inflation and the rising cost of living make money in the future worth less than money today. We’re paying you money today, for dollars we won’t receive for years. A lump sum of money now is more valuable than small monthly payments over an extended period of time.
As a result, every note purchased on the secondary market has its own value in today’s dollars. The value of your notes(s) will depend on the collateral securing the notes, property location, number of payments remaining, interest rate, and credit worthiness of the payor.
Q: What factors affect how valuable my note is ? (In other words, how much of a discount I am I going to have to take?)
A: The following factors affect how valuable your business note is:
- The interest of the rate of the note – the higher the better.
- The payment history. Are the payments on time? Are they late?
- The seasoning of the note (how long the payors have been making payments). The longer the better.
- The number of payments remaining.
- The credit of the business owner – The stronger the better.
- The loan to value (LTV) of the note – The lower the better.
- The type of business involved
Q: Will this affect the person / corporation making the payments?
A: The sale of your note will have no effect on the party making the payments.
The process is a simple assignment of your Secured Party position on the UCC-1 and will be completed in the utmost of confidentiality.
Q: How much will this cost me?
A: Nothing! We pay all typical costs to close the transaction.
Q: What are some of the reasons that people sell their Business Notes?
A: It is typically a pressing financial challenge. Such as:
- Better investment opportunity – A note owner may need the funds to invest in their next business.
- Another financial investment pops up – A note owner may need immediate cash to invest in a higher yielding or safer investment.
- A Clean Break – The sale of the note provides a “clean break” with their past ownership. They want to move on.
- Moving – When a business note seller moves out of the area, the logistics of servicing a note long distance can be daunting and not very appealing for many people.
- Taxes – A note owner may need the cash to solve a tax situation.
- Liquidity – Many people like the peace of mind in knowing that they have the cash in the bank and it is immediately available.
- Vacation, College, Bills, Other Projects – Notes can be converted to cash to pay for personal and family items. These items can include vacations, children’s college tuition, credit card and medical bills, additions for a new home, a new boat , a new car, opening expenses for a new business or any other project that the note holders may have, want or need.
Q: What are some Deal Killers?
- A business owners’ low credit scores ( generally, if less than 600)
- Less than honest replies from the business owner or note seller
- Discovery of unstated lien(s) in the UCC files
- Very small down payment (less than 20%)
- No personal guarantee on the promissory note
- Low equity.
- The lien is not in 1st position.
- A “green note” where less than 3 payments have been made.
- Poor pay history
Q: What type of collateral do buyers look for?
A: The note buyer is looking for things like: equipment, furniture, fixtures, automobiles, trucks, inventory and/or receivables.
Q: Can a Business Note can be sold simultaneously with the Sale Of The Business?
A: This is a question we get a lot.
We will consider doing a “green note”, where the funds will be released after the third payment has been received.
However, you will receive a much better price for your business note when the note has seasoning. Strong seasoning is realized after four to six (4 to 6) payments have been made. Unseasoned notes require a greater down payment, and a higher credit score.
At your request we’ll provide:
- A free, no obligation evaluation of your business note within 1-2 business days
- A program tailored to the penny, providing exactly the amount of cash you need now.
- A no cost transaction paid for by our company
- A proven way to beat inflation
It is not necessary to sell your entire note to receive cash, no matter what you have been told!