Cash for Seller-Financed Business Notes

• Buyer or business couldn’t qualify for conventional or SBA financing.
• Buyer and/or seller did not want to take the time required for SBA financing.
• Buyer was unable or unwilling to pay all cash.
• Buyer wanted to conserve cash for working capital.

• Seller would have preferred all cash at the sale.
• Seller has large debts to pay.
• Seller wants to make another investment.

• Minimum equity of 30% - combination of cash down and principal reduction on the note
• Good payor credit – particularly after the business purchase
• Fully amortized note with no balloon
• 72 month maximum term – five years or less preferred
• 1st lien against all assets
• Minimum two months seasoning – six months seasoning provides even better pricing for the note
• Evidence of operating cash flow from seller or buyer operating info
• Personal guarantee of payor – can be waived with CPA audited financial statement or current tax returns showing substantial capital/cash flow
• Business note only – will look at a business and real estate combination, called a “hybrid”
• Two notes for hybrids – one for the business and one for the real estate

• Stronger notes will command a higher purchase price and lower discount.
• Green, unseasoned notes will have to be discounted more.
• The shorter the term remaining, the lower the discount necessary.
• A partial, only buying part of the payments, often provides the seller with the cash needed and reserves the remaining payments for future income.