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Should you sell your business note? My question for you is, what do you need the money for?
Depending on what you want to do with the money there may be other financial options open to you: you may want to hang on to your note until it pays off, sell part of your note or even get a loan. Often times people who want to sell their note need money to start up a new business or to purchase an existing business. Additional reasons for selling business paper might include having additional cash for large purchases such as purchasing of a home, automobile or conversion of income streams for retirement.
One reasons why a person might want to sell their note is to start up a business or purchase an existing business. As you know, starting up a business requires proper funding. Many business owners dread the process of making a proposal and pitching it to the local loan officer. Bad personal credit, lack of assets or any number of reasons can mean the end of your loan. According the SBA, banks have been the traditional primary source of all small business funding, however by selling your business paper you have another potential funding source. The advantage of selling your note or partial note for funding as compared to a bank loan is that you can get the capital you need without borrowing.
Many people who want to sell their note, immediately wish to sell their entire note. A person who wishes to completely cash their note should consider that decision carefully. To the note purchaser, business notes are a potentially high-risk investment. According to the U.S. SBA, over 95% of small businesses fail in the first five years. Because of the high business failure rate business notes for the funding company can be some high-risk investments! Due to the high-risk nature of investing in a business, purchasers of business notes can give potentially high discounts to the business notes that they purchase. When a person sells their note, they are essentially transferring the risk of a business failing from themselves to the funding company that purchases the note. The larger the risk and the further away the payments, the higher the discounts. For this reason, many cash flow consultants will not recommend you to sell your whole note.
Due to the high risk nature of purchasing a note, many times the purchaser of a note will give as little as 50¢ per dollar for the purchase of a full note. 50¢ per dollar, you say! This is why in most cases selling part of a note or “partial” is a much better deal as compared with a full note sale. A person may want to sell their whole note and have good reason to, however selling part of their note is a much better idea for the note owner, however selling part of your note is still a much better deal. Selling part of your note is a much better deal for two reasons: firstly, the note purchaser investment risk and secondly the time value of money. According to these principals your payments two years from now are worth far less than your payments two months from now. Due to these principals you can get a much better deal selling part of your note now and the rest of your note later, rather than selling your whole note now. Most business note consultants will be able to strike a fair balance between your monetary needs and the high discounts of the business note financing industry ending in a reasonable deal.
In addition to the monetary questions of selling a business note, there are other factors that a person should consider. Are they concerned about late payments and collections? If the business note defaults are they willing to take over the business and possibly sell their business again? In addition to the cash advances on your note an additional advantage of selling is the transfer of note risk from the note owner to the note purchaser or financing company, freeing the original note owner from having to deal with the debtor or the current owner of the business.
The sale of a business note or partial depends largely upon your needs as the note owner and the realties of the business note industry. If you decide to sell your note, then you and your cash flow consultant can work together in creating a deal that will provide you with the cash that you need without overly discounting your note. The success of the sale of your business note depends largely upon striking a balance between your needs as the business note seller while including the realties of the business note market.
Written by Matthew Bostwick, CCFC
For more information please give a Sovereign Funding Group representative a call at 877-836-4661.

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