The objective of a business note buyer or investor when buying future business note payments is to minimize the risk of a default on the note. Therefore, they look for specific things when evaluating the purchase of future payments from your business note. Those include the following:
•buyer's down payment
•number of payments made on the note (also known as "seasoning")
•buyer's credit history
•personal guarantee of the buyer
•total amount of payments being sold
•cash flow of the business and past profitability
•length of term of the note
•payment amount
•offsets
•lien position of the note
•amortization of the note
•experience of the buyer with the type of business purchased
•interest rate on the business note
•documentation of the business sale
The business note must be personally guaranteed by the buyer. It cannot be guaranteed by the company buying your business. Specifically, it cannot be guaranteed by a person signing on behalf of the company. If there is a default, the business note buyer will be coming after the personal assets of the individual(s) making the personal guarantee. A personal financial statement for the buyer should be obtained to verify that they have the necessary assets should it be necessary to fulfill the personal guarantee.The maximum amount a business note buyer will buy in a single transaction is between $300,000 and $450,000. You can create a business note for more than this maximum amount, but the business note buyer won't buy more than their maximum at one time. This means when the period is completed for which payments have been sold any remaining payments will once again come to you. At this point you will have the option of selling future payments again, if you want to.The cash flow of the business must be adequate to service the note and provide additional cash for the new owner to live on. The cash flow should be at least 1.25 times the amount required to service the note. The business should have been in the same location for at least 3 years (4 years for restaurants and bars), and it should have been profitable over that time. A key item related to the term of the note is the term of the lease of the space in which the business operates. In order to avoid a major disruption to the business
due to a problem renewing the lease, the term of the lease should be at least as long as the term of the business note.The business note must be in first lien position. The business note cannot be a second position lien behind a bank loan. If there is a default, the second position lien holder may have a difficult time recovering their investment. One of the biggest factors contributing to the discount that the seller will have to take when selling the future payments is the difference between interest rate on the original business note, and the yield required on their investment by the business note buyer when they buy the future note payments. Therefore, the interest rate on
the business note should be set as high as possible while still allowing a monthly payment that can be covered by the cash flow of the business for the term of the note.
UCC-1
•chattel security agreement or chattel mortgage
•promissory note
•purchase agreement
The UCC-1 documents that the seller is holding a "perfected" lien on the business. This document is filed with county government and is part of the public record. If there is a default, this document indicates that the business seller will be first (after tax liens) to receive proceeds from the sale of any business assets.
Source by ezinearticles.com
•buyer's down payment
•number of payments made on the note (also known as "seasoning")
•buyer's credit history
•personal guarantee of the buyer
•total amount of payments being sold
•cash flow of the business and past profitability
•length of term of the note
•payment amount
•offsets
•lien position of the note
•amortization of the note
•experience of the buyer with the type of business purchased
•interest rate on the business note
•documentation of the business sale
The business note must be personally guaranteed by the buyer. It cannot be guaranteed by the company buying your business. Specifically, it cannot be guaranteed by a person signing on behalf of the company. If there is a default, the business note buyer will be coming after the personal assets of the individual(s) making the personal guarantee. A personal financial statement for the buyer should be obtained to verify that they have the necessary assets should it be necessary to fulfill the personal guarantee.The maximum amount a business note buyer will buy in a single transaction is between $300,000 and $450,000. You can create a business note for more than this maximum amount, but the business note buyer won't buy more than their maximum at one time. This means when the period is completed for which payments have been sold any remaining payments will once again come to you. At this point you will have the option of selling future payments again, if you want to.The cash flow of the business must be adequate to service the note and provide additional cash for the new owner to live on. The cash flow should be at least 1.25 times the amount required to service the note. The business should have been in the same location for at least 3 years (4 years for restaurants and bars), and it should have been profitable over that time. A key item related to the term of the note is the term of the lease of the space in which the business operates. In order to avoid a major disruption to the business
due to a problem renewing the lease, the term of the lease should be at least as long as the term of the business note.The business note must be in first lien position. The business note cannot be a second position lien behind a bank loan. If there is a default, the second position lien holder may have a difficult time recovering their investment. One of the biggest factors contributing to the discount that the seller will have to take when selling the future payments is the difference between interest rate on the original business note, and the yield required on their investment by the business note buyer when they buy the future note payments. Therefore, the interest rate on
the business note should be set as high as possible while still allowing a monthly payment that can be covered by the cash flow of the business for the term of the note.
UCC-1
•chattel security agreement or chattel mortgage
•promissory note
•purchase agreement
The UCC-1 documents that the seller is holding a "perfected" lien on the business. This document is filed with county government and is part of the public record. If there is a default, this document indicates that the business seller will be first (after tax liens) to receive proceeds from the sale of any business assets.
Source by ezinearticles.com
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