There are a couple of resources immediately available
to you, right off hand. You might want to call Lisa
Moren at Poser Investments… Lisa is a crackerjack,
and Poser is one of the largest business note buyers
in the country. Number over there is 800/333-1527
Another source that might be helpful is Ed Lisogar over
at National Capital Corp. They too are major players
in the business note industry. Ed’s number is 602/370-5670…
Either one should be able to give you the procedures
for structuring a saleable business note, and at the
best price in view of what ever the circumstances of your proposed business sale will be.
Hope this helps, and best of luck.
David P. Butler VP, Broker Relations
America’s Note Network
Re: notes on sales of businesses - Posted by Ed Lisogar
Posted by Ed Lisogar on November 07, 2000 at 15:44:51:
Hi Christy,
There are a variety of factors that dictate how ANY seller financed note should be structured. One of the most important aspects in a business note is how much the business can afford in debt service each month. A note is just a default in the making if the note payments are taxing the business. Conversely you don’t want to do anything silly like a long amortization as the discount will be huge. So we need to find a middle ground. Typically, best case scenario is about 5 years fully amortized, at AT LEAST a % or two ABOVE what the prevailing business loan rates are. Why? Because if a seller is going to “be the bank”, he should be making a good return on his money. If a buyer balks then tell him to get traditional financing and cash the seller out. Too many times we see the BUYER in control, when it should be the other way around. Unfortunately sellers don’t want to “upset” a buyer and risk having him walk from the sale. The result are horrendously structured notes…6%, fully amortized 20 years, etc., etc. They get the business sold but then find that they created a note that is terribly unattractive to companies like ours that buy business and corporate notes (Incidentally we WILL buy unseasoned and notes with corporate g’tees only as long as the investment exceeds $100,000). The last item to keep in mind is to stay away from balloon payments if at all possible. There’s little financing available for the purchase of businesses which is why there is so much seller financing going on in this arena (close to 80%). If so, where will the Payor get the money to re-fi the balloon? Balloons on busness notes typically do not get paid which means the noteholder (us) will have two choices: Foreclose or give the Payor more time. No one wants to foreclose (who has time to run a tanning salon in Topeka, Kansas?) and if we give them more time our yield goes through the floor. This is why we generally quote the payments only when presented with a business note that has a balloon that exceeds about a 40% ITV.
If a buyer contributes the typically required equity (cash out of pocket) of at least 30%-40% down, the resulting debt service should be more than affordable. If not, then it’s a sure sign the business over sold.
For any assistance on anything you’re working on feel free to drop me a line personally by e-mail. WIth my travel schedule it’s the best way to stay in touch and get a quick response.
Re: notes on sales of businesses - Posted by John Behle
Posted by John Behle on October 16, 2000 at 20:44:59:
In addition to the funding sources mentioned, you might want to also run it by www.wallstreetbrokers.com and see if they have an interest. They also buy business notes and have information available as to the requirements. You can’t go wrong with Wall Street or Walt Poser. I don’t know much about Lisogar, but he seems upstanding and very helpful to those learning the business.
Most investors who purchase business notes want personal and indvidual liablity on the note for its repayment. They also like to see very strong credit on that individual, and see that some significant cash down payment is being put up. Most business note investors also will NOT puchase a note that is unseasoned (eg. a simultaneous sale of the note with the sale of the business).
Equipment, furnishings, etc. must also be properly secured typically with a security instrument and also with a (UUC) Uniform commerical code filing with the state to perfect a lien against the personal property items that are included in the sale.
The yield requirements are strong and this also equates to very LARGE discounts especially for a full buyout of a business note.
I personally do not mess with business notes because of the extreme uncertainty of what collateral is worth second hand, and the constant complaints from buyers of businesses who feel they were taken advantage of.