Seller
Carry Back Business Notes
Congratulations! You have
sold your business. You didn't get all cash like you were
hoping, but you did get a nice note secured by the assets of your
business and a personal guarantee from the buyer and spouse.
Now, what are you going to do?
Do you have enough liquid cash for the down
payment on a new business, to make investments or pay off personal
debts? Can you borrow and use your note as collateral? Have you
considered converting the note from the buyer to liquid cash?
If you are just starting to think about
selling your business, and perhaps want to sell it the quickest
and easiest way possible, offer to finance the purchase, and plan
on selling the note after the closing. If that is your game plan,
you need to plan prior to selling, or you may not have a
note worthy of selling...
At the minimum, be sure to observe the
following. Missing one will cost you later...
-
Get at least 1/3 cash down payment.
-
Be sure the buyer has a good credit
rating.
-
Be sure the buyer has sufficient funds in
the bank for operating costs and reserve.
-
Must have a personal guarantee from the buyer.
-
Try to limit the note to 60 months or
less.
For an investor to consider purchasing your
note, at the minimum they will need copies of:
-
Promissory Note
-
Purchase and Sales Agreement
-
Security Agreement
-
Recorded UCC-1 (Financing Statement)
-
Lease Agreement and Assignment
-
Documented Payment Record
-
Seller's Tax Returns for previous two
years
-
Settlement/Closing Statement
In addition, credit checks will most likely
be done on buyer and seller for
-
Private or government liens
-
County and State searches to uncover
unpaid debts
-
Review of seller bank statements showing
deposits of payors loan payments
-
Written estoppel from buyer providing terms of sale and
promissory note
-
Any pending litigation and their feel for
success of the business.
If you sold a bad business, consider yourself
lucky! Don't plan on being able to sell the bad note that went
along with it. That is part of the price you paid to sell the
business. If you have a good note, there are buyers for it. They
will look more closely at the business, and parties to the
business than the buyer may have. If you would like someone to
contact you regarding selling your note, drop us an email.
Selling
your business by providing the financing was a perfect solution at
the time.
But... things have changed, and you could use
some cash now for:
-
Pay off all of your debts
-
Buy a house--and have no mortgage
-
Invest some portion of the money to earn
a fair return every year
-
Guarantee your children's education
-
Start your own business
-
And more
Some
advisors estimate that seller financing was present in as many as
90 percent of all business sales during the bank-credit crunch of
the early 90s. While the crunch has eased somewhat, sellers still
finance more than half of business sales.
Whatever
the reason you had for financing the sale, the payments you are
currently receiving are a valuable asset and can be converted
today to a lump sum of cash.
If interested, please contact me.
In the meantime, please fill out the Business
Note Worksheet.
Typical
Business Note Buying Criteria
First
Position Liens Only
Yields
starting at approximately 20%...
No
Dollar Maximums... "Typical minimum @ $8K-$10K
"Three
Way Program" recommended on business note quotes...
Seasoned
Notes (four-six payments received to date):
-
35%
cash, out of pocket down payment...(Will consider less down if
well seasoned...call to discuss)
-
Same
location and proof of business profitability for two years*
-Two
years of corporate tax returns/year end profit & loss
statements
-
Confirmation
that buyer had previous experience in the business in question
-
Minimum
625 FICA credit score Buyer(s)
-
Promissory
note must be personally guaranteed by Buyer(s)...will consider
corporate notes in excess of $100,000
Unseasoned
Notes (Less than four months payment history):
-
Minimum
40% cash out of pocket down payment at closing
-
Minimum
650 FICA credit score on Buyer(s)
-
Same
location and proof of business profitability for three years*
-Three
years of corporate tax returns/year end profit & loss
statements
Confirmation
that Buyer(s) had previous experience in the business in
question
-
Full
Seller Recourse: Seller may be required to provide personal
guarantee for the performance of the promissory note,
depending on the financial strength of Debtor.
-
Food
service businesses (restaurants, bars, deli's, etc.) require
four years minimum of operation at same location, same
format. Certain exceptions may apply (sizable cash down,
longevity at existing location, etc.) Call to discuss.
All
business note submissions are subject to underwriting review and
approval, and reviewed on a transaction by transaction basis.
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