Can I Sell a Business Note?

Yes! It’s very common for business owners to carry a portion of the sale when selling a business, and frequently, the note can be sold after 6 months of seasoning (this can be less in certain circumstances).

People selling business notes need to understand that typically, there are significant discounts involved, so if you’re not prepared for a 20%-50% discount (depending on all factors involved), then you’d be better off waiting out the term.

To set up your note and transaction ahead of time so you have a note worth as much as possible, you’ll want to consider hiring me to help you put your deal together.

The basic info I’ll need to start working on your business note:

• type of business
• location (city & state)
• sale date
• how note created (seller carryback?)
• sale price
• down payment
• original note balance
• interest rate
• term
• payment amount
• lien position
• payor onwership structure
• payor credit rating (D&B if applicable)
• personal guarantees
• value of hard asset collateral (tangible and intangible)
• value of intangible ’soft’ asset collateral
• goodwill value
• if real estate included (zoning factors, usage, operation history including NOI past 5 years, any other liens and their rate/term/balance, debt coverage ratio)

These are the documents I generally need to get started and that help me put together the above:

• copy of the note (front and back, or allonges) - be sure you keep the original note handy
• copy of the security agreement - you’ll need the original
• copy of the purchase agreement if purchase-money note
• copy of the bill of sale
• copy of closing statements related to creation of the note
• copy of the appraisal, if any
• copy of the payor’s original credit application and credit report
• documentation of payment history

Additional documentation requirements before closing (where applicable):

• copy of the UCC-1 financing statement
• copy of any UCC search done by Buyer prior to sale of note
• lease (or assignment of lease) documentation as well as landlord approved sale and landlord verification rent is current
• fire/hazard or EPA liability insurance policy Declaration page showing you as “Loss Payee”
• evidence of down payment (must be cash out of pocket, not financed)
• bill of sale, covenant not to compete, bulk sales compliance or waiver
• business/corporation/liquor/gambling license(s) and proof sales tax was paid
• franchise agreements, if applicable, and proof that fees are current
• payor’s operating banking information including bank name, address and account number
• copy of the check from a past payment
• financial information (financial statement) on payor and description of payor’s previous experience in this type of business
• if note seller is a corporation, Certificate of Secretary of Corporation showing that the person signing the documents is/are duly qualified to act on behalf of the corporation
• copy of Dept of Corporations Certificate of Status showing the corporation is in good standing
• note seller’s books, corporate or proprietorship tax returns for 2 years prior to sale
• note seller’s operating bank name, address and account # (if a simultaneous closing)
• social security numbers for note seller and payor, or tax ID# if corporations
• pictures of business and location map
• any previous names of the business when note seller owned it
• equipment leases, if any, plus name and address of lessor on any open leases
• authorization from note holder (note seller) to pull credit or D&B report on their behalf
• names, addresses, phone numbers, fax numbers, account number of: seller, payor, landlord, franchisor, escrow agent who closed the sales of the business, underlying lien holder(s) to be paid, insurance agent, appraiser of business, account servicing agent)

Potential fees that the note seller MAY be required to pay in order to sell:

• UCC search fees
• credit report fees
• appraisal cost
• corporate records search fee
• legal research cost
• background investigation cost
• field research cost

Let’s get started! I’d love to work with you to ensure that you get the best price and the best service with someone you can trust. You can email or fax documents to (626)451-0454.

And don’t worry . . . the documentation requirements can seem overwhelming, but my associates and I will be here to help you every step of the way.