What Makes A Salable Business Note
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A Business Note is most salable when the following items
are addressed in
the note:
1) 1st position is FAR more marketable than 2nd position
2) The face interest rate should be Prime + 3% to 5% to minimize discount due to
the
increased risk associated with a business note vs. a real estate note.
3) If possible have the note collateralized with the buyers home. A 2nd on real
estate is
more marketable than a 1st on a business alone.
4) Try to have the note fully amortized over 10 to 15 years but a 30 year
amortization
with a 5 or 10 year balloon is also marketable. Typically, note investors don't
like large
balloons coming due as they feel the payor runs a good possibility of going into
default
because they can't get this note refinanced.
5) Have the buyer sign the note with a personal guarantee and have the spouse
sign the
note too.
6) Have the buyers credit report ready to show a potential note purchaser
7) Have income statements & balance sheets from the business and a financial
statement
from the buyer ready to show the note purchaser.
8) If the buyers spouse works outside the business, have some proof of their
income so the
note purchaser can see that the note payor can afford to make the note payments
and still
have sufficient monies left over to live on.
9) Try to have proof of the cash down payment to purchase the business; closing
statement
etc. Investors are Leary of low or no down purchases. Then like to see 30% to
35% or more
equity in the business. Notes with low credit scoring and thin or no equity have
practically no chance of being bought.
10) The seller should have copies of cancelled checks showing the payments from
the buyer
on this note and the note should be seasoned 6 to 12 months before trying to
market it.
11) When sending a note to us, have the payors name, address, birthday and
social security
number so credit scoring can be verified if need be.
12) Credit scoring for the buyer/payor should be above 620 for real estate
secured notes
and 670+/- to 700+ for business notes
With all of the above criteria being met, we would have a quick sale and one
with minimal
or no discounting. As the above criteria deteriorates, the deal still may be
doable but
the investor yield and hence the discount would go up.
I hope this helps and I look forward to working with you.
Call Us Toll Free (866) 935-3100
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When Calling or Contacting Us, Please be
prepared to answer the following questions:
(Try to give as much info as possible as more info tends to
increase bid amounts) Are you currently receiving payments on this note? Y/N Are the payments current? Y/N What kind of Property secures this note? (real estate, business assets etc.) ___________________________________________ ___________________________________________________________________________________________________ Is this property Owner Occupied? Y/N Is this note Personally Guaranteed by Payor? Y/N Where is the property located? ___________________________________________________________________________ What was the Sales Price Of Asset Creating This Note? $ ________________________________ When was the Sale Closed? _______________ Is this note a 1st, 2nd or 3d? (circle one)__________ What is the Note Balance? $ ______________ How much Cash Down for the Sale? $___________ Payor Credit (to the best of your knowledge) Excellent (700 or more) Good (650-699) Fair (600-649) Poor (<600) (circle one) Payor Credit Score _______________ Payor Age _____ Payor married? Y/N Approx. Payor Annual Income $ ___________ What Payor does for a living & for how long? ____________________________________________________________________________
The Note: Starting Balance $_______________ Interest Rate _____ % Payment Amount $_______________ Amortized Years _____________ or Interest Only (circle one) Payments Per Year _____________ Balloon Payment? Y/N If there is a Balloon, It is due after how many payments? _____________ If this note is not in First Position, Please complete the following: Balance of 1st $ ______________ Monthly Payment $ _____________ Balance of 2nd $ _____________ Monthly Payment $ _____________
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