Home > Business Notes Purchasing Criteria BUSINESS NOTES PURCHASING CRITERIA... Financing carried back by the seller to facilitate the sale of a business often occurs because the buyer is unwilling/unable to pay cash or unable to qualify for conventional or SBA financing. A seller may want to liquidate their carry-back note because seller has debts to pay, wants to make another investment or prefers cash rather than payments structured over a period of time. Business Notes are the riskiest of all the notes that we purchase and are therefore discounted the heaviest. There are many factors that contribute to this high risk but the two most determining factors are: High failure rate of small businesses No collateral to secure the note The first is the traditionally high failure rate of small businesses in the United States. We all are aware of the numbers of businesses that close their doors within the first year or two. The second factor is that these notes usually have little to no collateral. When we purchase a business note, most of the time we are purchasing a note that is collateralized by the income the business is generating and maybe a personal guarantee by the payer. If we have to foreclose, the payer will likely file for bankruptcy (so we can't get anything from them). If we sell the equipment we will only get pennies on the dollar. A good business note will have: A minimum of 30% equity At least 3 months seasoning Good payor credit Fully amortized note (5 years or less preferred) with no balloon 1st lien against all assets Evidence of positive cash flow Personal guarantee from the payor Some basic observations regarding pricing: Unseasoned notes will have a larger discount. The shorter the remaining term, or the longer the seasoning, the higher price you will get. Feel free to contact Steven W. Hammons, President & CEO, anytime for a free no-risk consultation toll-free at 1-800-264-1056, Ext. 101, or complete our free business note quotation.