If you're holding a business note from seller financing a company you once owned, you can sell it for a lump sum instead of waiting years to collect monthly payments. The process involves finding note buyers, submitting documentation, going through due diligence, and closing the sale—typically within 30-45 days.
Many CEOs and entrepreneurs who've exited their businesses through seller financing eventually reach a point where they'd rather have immediate capital than continue collecting monthly payments. Whether you're a founder starting your next venture or an executive who needs liquidity for other investments, here's exactly how selling a business note works and what you need to know to get the best price.
The Step-by-Step Process of Selling Your Business Note
Step 1: Organize Your Documentation
Note buyers need specific legal documents to evaluate your business note. You'll need the original promissory note signed by the buyer, the asset purchase agreement from when you sold the business, security agreements showing collateral, UCC filing documents, complete payment history showing every transaction, and any personal guarantee agreements.
Missing documentation reduces offers or kills deals entirely.
Step 2: Contact Multiple Note Buyers
Get quotes from at least three buyers. The market for business notes is competitive, and prices vary between buyers based on their risk appetite and investment criteria.
Every note buyer will ask these questions:
- What's the current principal balance?
- What's the interest rate on the promissory note?
- How many monthly payments remain and what are the loan terms?
- What's the complete payment history—any late or missed payments?
- What was the original purchase price of the business?
- What type of business is it and is it still operating?
- What collateral or security exists, including personal guarantees?
- Is there a balloon payment structure?
- Can you provide current financial statements for the business?
Answer honestly. Misrepresenting information backfires during due diligence when potential buyers discover the truth and either reduce offers or cancel the deal.
Step 3: Review Preliminary Note Offers
Based on your responses, buyers provide preliminary quotes. These aren't final offers—they're subject to verification during due diligence. Your sale price depends on the interest rate, payment history, business performance, remaining balance, and collateral quality.
Step 4: Due Diligence and Underwriting
Once you accept a preliminary offer, the buyer's underwriting team verifies everything. They review all legal documents, analyze the payment history you provided, assess the current business's financial health and cash flow, verify UCC filings and lien positions, and sometimes interview the current business owner to evaluate stability.
This investigation period typically takes 1-3 weeks for business notes.
Step 5: Final Offer and Closing
If underwriting approves the purchase, you receive a final purchase agreement with the exact purchase price and closing terms. At closing, you sign an assignment agreement transferring the note to the buyer, deliver all original documents, and receive payment via wire transfer.
The buyer then notifies the business owner that the note has been sold and provides new payment instructions.
Full Sale vs. Partial Sale: Comparing Your Options
You can sell the entire business note or just a portion of the remaining payments. Here's how they compare:
| Aspect | Full Sale | Partial Sale |
| What You Sell | All remaining payments and principal | Specific number of payments, then note reverts to you |
| Cash Received | Higher lump sum | Lower lump sum |
| Future Income | None—complete exit | Payments resume after sold portion ends |
| Risk Transfer | Complete—buyer assumes all risk | Temporary—you still have long-term exposure |
| Best For | Need maximum cash; want closure | Need cash for specific purpose; keep long-term income |
| Example | Sell 60 remaining payments for $180,000 | Sell next 36 payments for $120,000, keep final 24 |
Partial sales work particularly well for entrepreneurs starting new ventures who need immediate capital for a specific purpose but don't want to completely exit the investment.
How Note Buyers Determine Your Purchase Price
You won't receive the full remaining balance on your business note. Buyers purchase at a discount because they're assuming risk and tying up capital. Typical discounts range from 20-40% below the outstanding principal, sometimes steeper for high-risk notes.
The interest rate significantly impacts your purchase price. A note at 3% when market rates are 8% requires a substantial discount to bring the buyer's actual return up to market levels. A note at 9% in a 6% market commands offers closer to par value.
Payment history matters enormously. If the business owner has made every payment on time for two years, that's valuable proof of reliability. Six late payments or payment restructuring in the past year? Expect much lower offers or buyers passing entirely.
The business's current financial health is critical. Note buyers often request current profit and loss statements, cash flow analysis, and revenue trends. A growing business supports higher note values. A declining business raises concerns about the buyer's ability to continue monthly payments.
Collateral quality affects pricing. Similar to how mortgage note buyers evaluate real estate collateral, business note buyers assess whether your note is secured by equipment, inventory, or accounts receivable—assets that can deteriorate quickly. Strong collateral with clear market value supports better offers.
Balloon payments create complexity. If a large balloon payment is due soon, buyers assess whether the business owner can refinance with financial institutions or has the cash flow to pay it. Uncertainty around balloon payments reduces note values.
The personal guarantee matters, though less than you might think. A solid business with good cash flow trumps a personal guarantee attached to a struggling business.
Common Mistakes That Reduce Your Sale Price
The biggest mistake is accepting the first offer without shopping around. I've seen business owners and executives leave $30,000 or more on the table by not getting competing bids.
Poor documentation preparation costs sellers money. If your payment records are scattered, you're missing key legal documents, or modification agreements weren't properly documented, buyers reduce offers to account for the increased risk.
Some sellers overestimate their note's value. Selling at 60-70 cents on the dollar feels painful, but that discount reflects real economics. The buyer is purchasing an uncertain future cash flow stream and needs a return that compensates for the risk that the business fails or the owner stops paying.
Watch for buyers charging separate fees. Reputable buyers build their costs into the purchase price rather than adding appraisal fees, due diligence fees, or processing fees at closing.
Red Flags When Dealing with Note Buyers
Be cautious with buyers who make offers without requesting documentation. Legitimate buyers need detailed information to price risk accurately. Offers made with minimal information are either lowball placeholder bids or from buyers who plan to reduce the price dramatically after due diligence.
If a buyer can't close within 30 days, they're probably not an actual buyer—they're a broker trying to flip your note to another investor at a markup.
Pressure tactics are another red flag. Reputable buyers understand that selling a business note is a significant financial decision and give you time to evaluate options.
Tax Implications of Selling Your Business Note
Selling a business note triggers tax consequences that vary based on how your original business sale was structured. The IRS generally treats the discount you accept as a capital loss, while the interest portion you're giving up represents ordinary income you won't receive.
The actual tax treatment depends on whether you reported the original sale on the installment method, how much gain you've already recognized, and your basis in the note.
Consult a CPA before committing to a sale. They can calculate exactly what you'll owe and help you understand whether the after-tax proceeds make selling worthwhile compared to holding the note.
When Selling Your Business Note Makes Sense
Sell your business note if you need substantial cash for a specific investment opportunity or expense. Many founders and entrepreneurs find that selling the note provides the capital needed to launch their next venture without taking on outside investors or debt.
Sell if you're concerned about the business owner's ability to continue payments and want to transfer that risk to someone else now. As a former CEO or executive, you understand business volatility—if you're seeing warning signs about the company's performance, converting the note to cash now may be smarter than hoping payments continue.
Sell if managing the note has become a burden. Tracking payments, worrying about defaults, and staying financially connected to a business you sold can be exhausting.
Don't sell if the discount is so steep that you'd be better off using the note as collateral to borrow money instead. Don't sell if you're depending on those monthly payments for living expenses without another income source to replace them.
The market for business notes exists because investors want the returns that seller financing provides without the work of running a business. Your business note represents real value that you created when you seller-financed the sale. For entrepreneurs and executives moving on to new opportunities, selling it is a legitimate financial strategy. Take time to understand the process, get competitive offers, and verify that selling aligns with your current financial goals rather than just accepting the first offer that lands in your inbox.
