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Monthly Payments?
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Capital Note Exchange
Cash Flow Notes Business Capital

You can contact us 24/7 by phone.
Call us at (866) 931-5846 for a free quote
We accept all calls live 24 hours a day 7 days a week
or email us at Capitalnoteexchange@Yahoo.com


Capital Note Exchange

 
We can place you with the right Business Note specialist to best meet your cash flow needs

Business Notes
  1. What is a Business Note?
  2. Why would I want to sell my future payments?
  3. Why is there a discount?
  4. How much cash can I get today for my note?
  5. Can I sell just part of my note if I don't need all of my cash today?
  6. How long will it take before I have my money?
  7. What is the process i.e., how does it all work?

1. What is a Business Note?

A business note is a document (or documents) secured by a business and, often, personal property such as inventory, furniture, and so on, that obligates one individual or company to make periodic payments to another individual or company. These receivables are created when a business, such as an accounting firm, is sold. There is no real estate involved in these transactions. The purchaser gives the seller a cash down payment and the balance is paid to the seller in periodic, usually monthly, installments. Therefore, payments are made from the business purchaser (payor) to the business seller (payee). The seller, therefore, provides the financing to the purchaser the same way a bank normally does. This is called seller-financing or owner-financing and is a very common form of financing on the sale of businesses with no real estate. The payments a business seller will receive from these notes are an asset, and like any other asset, can be sold for a lump sum of cash.

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2. Why would I want to sell my future payments?

There are perhaps as many reasons people sell their notes as there are ways to spend money. We always ask note sellers why they wish to sell their note. The most frequent responses we get are:

1. To eliminate the risk and responsibility in holding the note

2. To achieve liquidity

3. To take advantage of other investment opportunities

4. To pay off debts; and

5. To make specific purchases. 

Often people never wanted to carry back a note in the first place but had to in order to sell their business. Other situations, such as notes provided as equity settlements in divorce cases, inherited notes, to name just two, often result in the current holder owning a note they never wanted. Often these people are happy to receive the current value of their note in cash and move on with their lives.

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3. Why is there a discount?

Whenever future payments are sold for cash today the current balance is always sold at a discount. There are two reasons for this: 

1. The amount of the loan is paid back to the payee over time--and time erodes the value of money; and,

2. The stated interest rate on seller-financed Notes is not high enough to induce investors to purchase these loans. 

Therefore, to increase the yield investors get on the investment, you must sell the cash flow at a rate of return greater than the note rate. You do that by selling the note at a discount from its current principal balance.  Business notes are sold at a deeper discount than real estate receivables since the security, a business operation and personal property, does not provide the same degree of safety that real estate does.

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4. How much cash can I get today for my note?

The amount of cash a note can be sold for depends on three general components:

1. The current economic environment

2. The terms of the note (payment amount, interest rate, length of payback, etc.)

3. The probability that the note holder will lose his/her money (degree of risk)

The current economic environment influences the yield or rate of return an investor requires when purchasing a note.  In general, the better the economy, the lower the cost of funds for the investor, and, therefore, the lower the yield we require on the investment.  Currently (June 2008), we are  in a fairly good economic environment as far as interest rates are concerned.  Today's low interest rates means more cash for note sellers than ever before--and perhaps more than will ever be paid in the future.  

We must examine the terms of the note (#2 above) and the degree of risk (#3 above) individually for each note offered for our purchase.  Many people would like us to quote a fixed percentage of the remaining balance on their note. This is not possible due to the great variability these two items possess.  However, in most cases, we can evaluate all three of the above components and make a cash offer for your note while still on the initial telephone conversation.

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5. Can I sell just part of my note if I don't need all of my cash now?

Yes, in fact this is very common. It is referred to as a "partial purchase" and involves selling only a certain number of the remaining payments on your note. At Capital Note Exchange we can purchase any number of the remaining payments in almost any manner you can think of. For example, let's say you have a note with a balance of $80,000 payable in 240 monthly installments. If you needed just $20,000 now for whatever reason, we would calculate how many payments we would need to purchase to provide you with that specific amount of cash. Precisely which payments we purchase depends on your personal financial situation. Here's a few of the options we could look at for you:

We could buy (Numbers are for illustration only):

Remember, all of the above options will provide you with the $20,000 needed today. The type of partial purchase chosen will depend entirely on your unique financial situation. In other words, you may choose the first option if you need $20,000 today and want or need to have a future monthly cash flow beginning in 5 years. You might choose the second option if you need $20,000 today and you need a monthly payment for the next 5 years until, say, your retirement benefits begin.  And you might choose the last option if you need $20,000 today and also want or need the monthly 50% payment for the next 20 years.

There are many other ways we can structure the partial purchase for you. Our goal is to get you the specific amount of cash you need NOW while also addressing your financial concerns of the future. A real estate note is a remarkable asset when you can intelligently sell your payments to an investor like Capital Note Exchange. who has the expertise to offer such a rich variety of possibilities.

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6. How long will it take before I have my money?

We have purchased notes in as little as one day; and it has taken over a year to purchase others.  On average, it takes approximately four weeks.  If the sale of your business and the creation of the note was straight forward then you should have your money within four weeks.

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7. What is the process, i.e., how does it all work?

To purchase a business note we need to take an assignment of the security instrument (UCC-1 Financing Statement) and receive an endorsement of the promissory note.  These are the final steps in selling your note however. Before we get to this point we have to do our due diligence.  That is, we need to closely examine all aspects of the transaction.  You need not be concerned with not knowing what to do; however, since we do all of the work-- from verifying all aspects of the deal to preparing and having recorded all of the necessary documents to make the change.


Business Note Top 10

The following are the ten most significant areas looked at in determining the value of a business note. It should be noted that these are guidelines that often have exceptions. Strength in one area can offset deficiencies in others.

Each business note is unique and our consultants will be happy to assist you in determining the value of your note.

  1. Your note should be in 1st position. Notes subordinate to an SBA or commercial bank loan attract little to no interest from funding sources.

  2. Get the largest down payment possible. Down payments of 33% or greater are preferred.

  3. Attempt to get the highest interest rate and the shortest term possible. Funding sources will normally only purchase 5 to 7 years of payments. Notes longer than that will often result in what is known as a "partial purchase". This option often benefits both the seller and buyer of the payments. We will be happy to explain how.

  4. Avoid balloon payments if possible. The most attractive notes fully amortize in 5 years or less. Balloon payments present some uncertainty and the associated risk may diminish the value of your note.

  5. Try to avoid early payoff clauses. Funding sources assume that your buyer will execute the early payoff and they take that into account when making an offer on your note. You can always approach your buyer later with an early payoff offer.

  6. Sell to a credit-worthy buyer. Since the buyer of your business will be making the note payments, their credit and payment history are important.

  7. Seasoning. You should expect to carry your note for a minumum of 3 to 6 months before being able to sell. We can often generate interest in a note before that, so give us a call right away. We can get a lot of the paperwork done ahead of time to get you your cash sooner.

  8. Real Estate. A business note secured with real estate can be more valuable since it reduces the level of risk.

  9. Pricing. An overpriced business will put downward pressure on the value of the note. A business should have the ability to easily handle the financial payments.

  10. Use a reputable and knowledgeable cash flow consultant. Take advantage of our knowledge of the business note market. When it's time to sell all or part of your business note, let us bring you the highest possible offer from proven financial sources. We look forward to working with you and being "Your Source for the Funds You Need Now!"

Capital Note Exchange
Cash Flow Notes Business Capital

You can contact us 24/7 by phone.
Call us at (866) 931-5846 for a free quote
We accept all calls live 24 hours a day 7 days a week
or email us at Capitalnoteexchange@Yahoo.com

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The information contained on this website is not intended as a solicitation, commitment or offer, and is not intended to convey any legal, tax, financial or other advise. All such advise should be obtained by an attorney, accountant or other professional of your choosing.

 

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