Seller financing is a common exit structure in small business sales. The buyer doesn’t have the full purchase price, the seller wants to close, and both parties agree to a note. The buyer makes monthly payments. The seller collects them.
That arrangement works until it doesn’t. Life changes. The seller retires, needs capital, or simply doesn’t want to manage collections anymore. When that happens, the option to sell a business note on the secondary market exists, and more sellers use it than you might expect.
Here’s how the process works and what determines what your note is worth.
Key Takeaways
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What a Business Note Actually Is
When a business is sold with seller financing, the buyer signs a promissory note agreeing to repay the financed portion of the purchase price over time, usually with interest. That note is a financial asset. The seller holds it, but it can be transferred or sold to a third party.
Business notes are distinct from real estate notes. They’re typically unsecured or secured by business assets rather than real property, which affects how secondary market buyers price them.
Why Sellers Want to Exit the Note
The most common reasons:
- They need a lump sum now rather than payments over 5 or 10 years
- The buyer’s business performance has become uncertain and the risk no longer feels worth carrying
- The seller is moving on to another investment and wants clean capital
- Managing collections is more administrative work than anticipated
Plenty of sellers with healthy, performing notes choose to sell simply because their priorities have shifted. The note doesn’t have to be in trouble for this to make sense.
What Note Buyers Look At
When you approach a note buying company, they’ll review the note itself and the underlying business situation. Key factors:
- Outstanding balance and remaining term
- Interest rate and monthly payment amount
- Payment history, how consistently the buyer has paid, and whether there have been any missed payments
- What secures the note: personal guarantee, business assets, real estate
- The business’s financial performance since the sale
A personal guarantee from the buyer significantly improves the note’s value. If the business fails but the buyer has personal assets, the note holder has additional recourse. Notes without personal guarantees are harder to sell and typically sell at a steeper discount.
The Discount
Business notes almost always sell below face value. If you’re owed $200,000, you won’t receive $200,000. The discount reflects the risk the note buyer is taking on: no real property to foreclose on, dependence on business cash flow, and the general illiquidity of business paper.
A well-documented note with strong payment history, a personal guarantee, and a profitable business behind it might sell at 70 to 80 cents on the dollar. A poorly documented note with no guarantee and sporadic payments might get 50 cents or less, if it’s purchasable at all.
How the Process Works
You submit the note documents, payment history, and information about the buyer’s business to the note buying company. They evaluate and make an offer. If you accept, closing typically happens within a few weeks.
Unlike real estate note sales, there’s no title company or property appraisal involved. Due diligence focuses on the note documentation and the buyer’s creditworthiness.
Before You Sell: What to Have Ready
- The original signed promissory note
- A payment history showing all payments received
- Any security agreement, UCC filing, or personal guarantee attached to the note
- The purchase agreement from the original business sale
- Basic financial information about the buyer’s business, if available
If the note was structured informally without an attorney, review it now. Missing signatures, incorrect terms, or unclear collateral language all reduce what a buyer will pay.
About the Author
Abby Shemesh is the Founder and CEO of Amerinote Xchange. She specializes in purchasing seller-financed notes including business notes, mortgage notes, and land contracts. Amerinote Xchange works directly with note holders, with no brokers and no commissions.
Want to learn the proven strategies top businesses use? Try searching ‘small business consulting‘ to connect with an expert in your area!
Frequently Asked Questions
What is a business note in a seller-financed business sale?
A business note is a promissory note signed by the buyer when a business is sold with seller financing. The buyer agrees to repay the financed portion of the purchase price over time, usually with interest, and the seller can hold or sell the note as a financial asset.
What factors determine the value of a business note?
The value of a business note depends on the outstanding balance, interest rate, payment history, remaining term, collateral, personal guarantees, and the financial performance of the buyer’s business. Notes with strong documentation and consistent payments typically receive higher offers.
Why do business owners sell their business notes?
Business owners often sell their business notes to receive a lump sum instead of waiting years for monthly payments. Other reasons include reducing risk, accessing capital for new investments, or eliminating the administrative work involved in managing collections.
