Posted by David Butler on July 08, 2001 at 16:28:20:
Yep… business notes are a thriving niche in the private secondary cash flow markets - but they are also a highly specialized sector.
As you can well imagine, business notes are extremely high risk paper, under almost all circumstances - so they operate under a much different set of underwriting guidelines than do real estate notes, or even mobile home notes.
Down payment and Payor credit requirements are much higher; documentation of operating history is critical; as are: the nature of current ownership structure; personal guarantees and the financial strength of the guarantors, nature and extent of protective covenants in the deal - All are critical elements that have to be carefully documented and quantified.
Additionally, detailed information with regard to method of valuation in relation to to the sales price of the business in which the note was originated… and specifically, highly detailed information with regard to identification and method of valuation used for determining value of business “hard-assets” securing the note… are extremely important to have in supporting the sale of a business note. Without a clear picture of the transaction, it is impossible to get a “meaningful” quote on the note.
It’s not as complicated as it sounds however… nothing much more than selling a used car. If you were selling a used car, you can easily imagine that all but the most ignorant of buyers is going to want to know several things…
Pretty basic stuff, right? Same thing for business notes… Amazingly, with all the risks and liabilities that are involved in business sales, many sellers and/or their advisors avoid the basics like the plague!!!
Anyway, feel free to email me privately if you need specifics related to some of the particulars on the business note you are holding.
David P. Butler