CAN YOU HELP ME BEFORE I SELL MY BUSINESS?
If you are planning on selling your business and offering seller financing, we can provide the help that you need. MannaResources LLC will show you how to properly structure your seller carry back business note. We will inform you of the various factors that will maximize the value of your business note. If you decide to sell either all or a portion of your business note payments in the future, this provided service will be of great benefit to you.
CAN I SELL MY BUSINESS NOTE AT FULL-FACE VALUE, OR MUST I DISCOUNT IT?
Business notes are sold at a discount from their full-face value. There are several reasons for this. Let’s first consider inflation. The business note investor is buying the future payment income stream of that business note. Inflation’s effects will eat into the value of those future business note payments. There’s also the additional risk of nonpayment (payment default) at some future date. The business note investor is taking on all the risk of future payment default and removing that risk from you, the note seller.
A further risk would include the possibility of the business closing at some point in the future due to mismanagement. Mismanagement is one of the main reasons why businesses fail. The business note investor is taking on this potential mismanagement risk and eliminating it from you, the note seller. In addition to this, consider what happens if the market moves against the business owner and their business. If this happens, the business owner could be facing a situation where their services or products are no longer relevant or needed. If they are not able to adapt and make the necessary changes to stay in business, then the business will close.
Another risk to consider is that of a bigger competitor moving into the local marketplace with lower prices for their services and/or products. Once this happens, the smaller business could eventually end up losing most of their customer base. This would then result in the closure of the business. There’s also the risk of a national pandemic, such as we’ve seen with Covid-19. A pandemic could force the business to shut down and permanently close their doors.
If the business closes for any of these reasons, the business note investor would be forced to sell off the business assets for pennies on the dollar. This would result in an investment loss for the business note investor. The discount from the full-face value of the business note helps to offset the various real investment risks that the investor takes on when purchasing the business note.
DO I HAVE THE OPTION OF SELLING EITHER ALL OR A PORTION OF MY REMAINING BUSINESS NOTE PAYMENTS?
We can purchase either all (Full Purchase) or a portion (Partial Purchase) of your remaining monthly business note payments. The Partial Purchase option is based upon the total number of remaining payments due you, along with the number of payments that you want to sell. For example, you may have a business note that has 36 remaining monthly payments. But perhaps you only want to sell 12 of those remaining 36 payments. The business note investor agrees to purchase the next 12 payments. After the investor has received their 12 payments, the business note and its remaining balance of 24 monthly payments reverts back to you. With the Full Purchase option, you would be selling all your remaining business note payments. Always ask for an option that meets your needs.
AFTER THE SALE OF MY BUSINESS NOTE, WILL I OWE ANY MONEY BACK IF THE BUSINESS BUYER DEFAULTS ON THEIR BUSINESS NOTE PAYMENTS?
The business note sales transaction is non-recourse to you, the business note seller. This simply means that you keep all the money from the sale of your business note. The business note buyer assumes all the risk concerning payment defaults.
WHAT ARE THE PURCHASING GUIDELINES (UNDERWRITING CRITERIA)?
- Down Payment — A 20% minimum of the business purchase price is required.
- Lien Position — A 1st lien position is required.
- Seasoning — A minimum of one monthly note payment is required.
- Minimum/Maximum Purchase Amount — There is no minimum purchase amount requirement. The maximum purchase amount the investor will fund is $600K.
- Business Cash Flow — The business must be cash flow positive (minimum 1.25 debt service coverage ratio). The debt service coverage ratio (DSCR) is simply a measurement of the business’s available cash flow to pay its debt obligations. The investor needs to make sure that the business generates enough income to pay its debts. The DSCR equals the Net Operating Income divided by the Total Debt Service. If there is a problem with the DSCR, the investor may sometimes still provide the business note funding. This would depend upon whether the business buyer has outside documented income and/or has pledged personal real estate assets with lendable equity.
- Payor (Business Buyer) Credit — There is no minimum credit score requirement. There should be no major derogatory trade lines (i.e., no bankruptcy, 90+ day delinquency, foreclosure, etc.). Neither should there be any decline in the payor’s credit since the purchase of the business.
- Personal Guarantee — This is required from the buyer of the business unless the business note has substantial seasoning and an excellent payment history.
- Security/Collateral — There should be a UCC-1 lien, along with a security agreement executed between the buyer and seller. This is required unless the business note has strong seasoning and the business buyer’s credit is good.
- Maximum Number of Payments That Can Be Purchased — A maximum of 72 monthly payments can be purchased. Any payments over 72 months will revert back to the seller.
WHAT COPIES OF DOCUMENTS WILL YOU NEED?
- Promissory Note (with buyer’s personal guarantee)
- Security Agreement
- Purchase Contract/Asset Sale (A Bill of Sale may be substituted if parties didn’t execute a contract.)
- Proof the seller has received and deposited the down payment proceeds and the last several monthly payments
- Settlement/Closing Statement (if applicable)
- UCC-1 Lien
- Last two years of business tax returns that substantiate the business profit and loss statements
WHY SHOULD I SELL MY BUSINESS NOTE TO MANNARESOURCES LLC?
- Fast Closings — We typically fund and close in 10-15 business days. It’s important to note that you will need to submit on a timely basis all the required documents needed for closing.
- No Upfront Costs — The quote you receive for your business note is the net amount to you, with no additional costs.
- Simple Application Process — Completing the business note funding application is a fast and easy process.
- Customized Options — We will present several business note purchase options for your consideration.
- Exceptional Customer Service — We will assist you throughout the entire process of completing a successful business note sales transaction.
HOW DO I GET STARTED?
Your next step is to complete the Business Note Funding Application. Click here to get started!