Business Note Buyer • Sell Business Note • Business Note Buyers • Sell Business Notes • Buyer Business Note

You've sold your business with owner financing and now own a business note. The monthly payments you receive can be an excellent source of income. Especially for people who don't feel comfortable investing in the stock market, but want to earn a better rate of interest than the banks are paying. Just like any other investment, however, it is important to know how to protect the value of your note.

Unlike many other investments, the note created when you sell a business is backed by specific business collateral. Protecting this collateral is imperative to maintaining the quality and health of your investment. As the note holder, you have the ability to protect your collateral built into the security agreement. Once you begin collecting payments it becomes your responsibility to monitor and enforce these provisions. In the remainder of this section, we present some important steps you can take to help protect your investment.

Keep Your Original Documents Safe

Business notes are negotiable, transferable documents. Safeguarding these documents is extremely important. Many times the attorney that handled the property closing for you will keep these documents in their files and provide you with a copy. This can be satisfactory if you are going to maintain an ongoing relationship with that attorney. If not, or if you prefer to keep them yourself, store them in a fireproof box or in a safe deposit box at your bank. Be sure to keep copies of the originals at home for your records.

Keeping a Payment History

Maintaining an accurate history of when you receive each monthly payments is essential. It will help prevent any misunderstandings between you and the borrower. It may also help the borrower refinance the note if you have included a balloon payment. Most importantly, taking this step will help you receive the highest cash price for your mortgage should you ever decide to sell it.

Along with updating your payment record each month, you should always deposit the payment into your bank account. This will provide you with a verifiable record of when you received each payment. Another suggestion would be to keep a copy of each check or deposit slip in a file with your payment record. Finally, in the event that you receive a payment after the grace period has expired keep the envelope the payment was mailed in to help provide proof that you are entitled to receive the late payment penalty called for in your note.

Purchaser's Duties to Maintain Premises and Not Commit Waste

It is the Purchaser's duty to protect the value of the business he or she is buying until it is paid in full. This clause is important because the value of the business is what keeps the Purchaser making payments. If the Purchaser ever defaults and suffers foreclosure, it is the value of the business that may enable the note holder to re-sell without suffering a loss. It would be a good idea to drive by the business you sold on an annual basis at minimum. If you have moved out of the area, have someone you know do this for you. Fundamental changes to the business can seriously diminish the value of your investment.

If Payments are Late

If a payment is ever late, we recommend taking the following steps: (1) Check the note to see if a "grace" period exists; if so, you must honor it. (2) If no grace period exists or if it has expired, phone the borrower and ask about the payment; insist upon payment; make a note of the date and time of the call and keep this information with your note. (3) On the same day as the above phone call, write a letter that identifies the default and summarizes any action the borrower has promised to perform and mail it, certified mail, return receipt requested. (4) If the above steps do not produce the desired results contact an attorney. If mismanaged, trying to cure a default by yourself can cause problems.

A failure to enforce any clause in your note and security agreement can, over time, establish the precedent that the clause is not binding and has no effect. In other words, actions speak louder than words. Consistent conduct over a period of time, in fact, can take precedent over the actual wording on your contract in a court of law! In short, stick to the language in the note or be prepared to find it difficult to enforce in court. Declaring a note to be in default and starting the foreclosure process is a serious matter and should be handled by an attorney familiar with the laws of the state in which the business is located. The biggest mistake made by note holders in this area is (1) trying to take matters into their own hands, and (2) delaying the exercise of their rights. Begin to think in terms of foreclosure when the Purchaser is one month behind, not three or four months.


If the borrower fails to perform any significant part of the note, the note holder may have the right, after notifying the borrower in writing of the exact nature of the default, to declare the remaining balance due and payable. Then, if the default is not the cleared up or the note is not paid in full, the note holder can begin steps to regain possession of the business. Defaults by the borrower may include failure to make timely payments, failure to properly maintain the business or failure to adequately insure the business.

Remember, you are not the "bad guy" . . . the borrower is the one not making payments. He or she can sell the business, refinance or bring payments current. The ball is in his or her court, so to speak. Advise the borrower of the available options and of the fact that you are prepared to bring legal action. After an initial phone call and a certified letter, only swift and decisive action taken with the assistance of legal counsel is likely to cause the borrower to act. Be honest, firm and considerate. Don't harass and don't delay!

Keep records of all written and spoken conversations with the borrower, including dates, times, and what was discussed. You will never know how or when these records will come in handy until you need them but don't have them. Then it's too late! Also, because your attorney will be required to appear in court, it is best to hire one who lives near the business in question. This will save you from paying travel time and other unnecessary expenses.