If you’re holding a business note from seller financing a company you once owned, you might be wondering how to convert that steady stream of payments into immediate cash. I’ve worked with countless business owners who’ve seller-financed their companies, only to realize later that they’d rather have their money now than wait years for monthly payments to trickle in. Let me walk you through exactly how to sell a business note, based on what I’ve learned helping note holders navigate this process.
Understanding What You’re Actually Selling
When you sold your business with seller financing, you essentially became a lender. The buyer signed a promissory note agreeing to pay you over time, and you’re now receiving those monthly payments. That promissory note is an asset—and like any asset, it can be sold.
The thing is, most business owners who seller-finance their companies don’t initially plan to sell the note. They structure the deal this way to make the business sale more attractive to potential buyers, or because traditional financial institutions wouldn’t finance the deal. But life changes. Maybe you need a lump sum for a new investment opportunity, or perhaps you’re just tired of tracking payments and want to move on completely.
Why Business Owners Sell Their Notes
I’ve heard every reason under the sun for why someone wants to sell their business note. Sometimes it’s straightforward—they need cash for a down payment on a house or to fund their next venture. Other times, it’s more about peace of mind. One client told me he couldn’t sleep at night wondering if the new owner would keep making payments. Selling the note transferred that risk to someone else.
The personal guarantee attached to many business notes doesn’t always provide the comfort you’d think. Sure, it’s nice to have legal recourse if payments stop, but actually collecting on that guarantee? That’s a whole different headache involving legal documents, court time, and stress that many sellers would rather avoid.
Finding the Right Note Buyer
Here’s where things get real: not all note buyers are created equal. I’ve seen business owners get lowball offers from buyers who count on sellers not shopping around. The smart move is treating this like any other significant financial transaction—get multiple quotes.
Reputable note buyers will ask for detailed information about your business sale before making an offer. They’ll want to see the asset purchase agreement, the promissory note, payment history, and financial information about the buyer’s business. This isn’t them being nosy—it’s due diligence. A buyer who makes an offer without asking these questions probably isn’t someone you want to work with.
The note buying industry has some overlap with the real estate note market, so buyers who purchase mortgage notes often buy business notes too. That said, business notes can be trickier to evaluate than real estate notes because the collateral (the business itself) is harder to value and can deteriorate faster than property.
How Note Buyers Determine Your Purchase Price
Let me be straight with you: you’re not going to get the full remaining balance of your note. Note buyers purchase at a discount because they’re taking on risk and tying up their capital. The purchase price depends on several factors.
First, the interest rate matters. A note with a competitive interest rate is worth more than one with a below-market rate. If you seller-financed at 3% when the market rate was 8%, expect a steeper discount.
Second, the payment history is crucial. If the buyer has made every payment on time for two years, that’s gold. If they’ve been spotty or needed payment arrangements, that significantly impacts value. Note buyers scrutinize cash flow patterns to assess risk.
Third, the strength of the business itself factors in. Is it growing? Stable? Declining? Note buyers often request current financial statements from the business to evaluate whether the buyer can sustain those monthly payments. A thriving business supports a higher note value.
The remaining term matters too. Balloon payments can be a double-edged sword—they might make the note more attractive if the balloon is imminent and the business is strong, or they might create concern if there’s doubt about the buyer’s ability to refinance or pay the balloon.
The Actual Process of Selling
Once you’ve found a note buyer and agreed on a purchase price, the process is fairly standardized. You’ll submit all your legal documents—the promissory note, security agreement, asset purchase agreement, UCC filings, and payment records.
The buyer’s underwriting team reviews everything. They might request additional documentation or even want to interview the current business owner to assess stability. This investigation period typically takes one to three weeks, though I’ve seen it happen faster when everything’s well-documented.
If underwriting approves the purchase, you’ll move to closing. This involves signing an assignment agreement that transfers the note to the buyer. Most note buyers handle the paperwork—you’re mainly just signing documents.
One thing that surprises many sellers: the buyer will contact the business owner (the person making payments to you) to notify them of the sale. This is standard procedure. Going forward, that business owner will send payments to the new note holder instead of you.
Partial Note Sales: An Alternative Worth Considering
You don’t have to sell the entire note. Some note buyers purchase just a portion of the remaining payments. For example, if you have 60 monthly payments remaining, you might sell the next 36 payments to a note buyer for a lump sum, after which the remaining 24 payments revert to you.
This strategy works well if you need cash now but don’t want to completely exit the investment. It can also result in getting more total money over time compared to selling the whole note, though you sacrifice immediate liquidity for the portion you keep.
Common Pitfalls to Avoid
The biggest mistake I see is accepting the first offer without shopping around. Note buying is competitive, and prices vary significantly between buyers. Get at least three quotes.
Another error is poor documentation. If you haven’t kept good records of payments received, copies of all legal documents, or modification agreements, it complicates the sale and can reduce your offer. Start organizing everything before you contact buyers.
Some sellers also overestimate their note’s value. It’s natural—you know what you’re owed, and selling for 70 or 80 cents on the dollar feels painful. But understanding the economics from the buyer’s perspective helps. They’re buying an uncertain cash flow stream and need to build in a return that compensates for that risk.
Tax Considerations You Can’t Ignore
Selling a business note triggers tax consequences that vary based on your specific situation. The IRS generally treats the discount you take as a capital loss, while the interest portion you’re giving up is ordinary income you won’t receive. But the actual tax treatment depends on how your original business sale was structured and reported.
I’m not a tax professional, so I always recommend consulting with a CPA before selling. They can run the numbers and tell you exactly what to expect on your tax return. Sometimes the tax hit makes selling less attractive; other times, it’s negligible compared to the benefit of having immediate cash.
Is Selling Your Business Note Right for You?
Only you can answer this, but here’s my framework: Consider selling if you need substantial cash for a specific purpose, if you’re worried about the buyer’s ability to continue payments, or if managing the note has become a burden. Consider holding if the monthly payments provide income you need, if the interest rate is generous, and if the buyer has a solid track record.
For many business owners, selling the note provides closure. You sold the business to move on, and continuing to hold the note keeps you financially connected to something you wanted to leave behind. Converting it to cash lets you truly turn the page.
Whatever you decide, make sure you’re dealing with legitimate note buyers who are transparent about their purchase process and pricing. This is a significant financial decision, and you deserve to work with professionals who treat it that way.
The note you’re holding represents real value—the question is whether that value serves you better as monthly payments over time or as a lump sum today. Take your time, do your research, and make the choice that aligns with your current financial goals.
