In Small Businesses Notes Are King

Small businesses have exploded across the landscape over the past 10 years. A recent Dept. of Commerce report indicates that fully 65% of the nation's work force is now employed in small business enterprise. An obvious sidebar is the prolific growth of small business owners. Chances are you count one or more of these small business owners as part of your client base.  When they sell their businesses there is a strong likelihood that they will seller finance their business by carrying back a note – or a “cash flow note” that they really would rather not have.  Most aren’t aware of some of the network of people out there who are in the business of buying and selling cash flow notes.

The odds are even higher that these particular clients have financial needs that are not being adequately met .One of these needs is paramount when buying or selling a small business. Despite the relatively "easy-money" cycle our economy has enjoyed in the past several years the government's efforts through the SBA and SBIC programs, and the growing number of banks advertising "small business" friendly programs - the high failure rate of small businesses causes the entire category to be considered high risk.

Again, here is where listing that note the owner will be asked to carry back can be placed on a national network of cash flow note specialists who can give you cash for your note now and invest the lump sum of money in the your new business are any where else that you could make a higher rate of return.

When it comes to financing the buying or selling of a small business, the perception of risk is magnified.  Why?  The answer is simple: In a typical "true" business sale (no real estate ownership involved), only 25%, or less, of the sales price is usually rooted in any hard, tangible, foreclosable collateral assets (furniture, fixtures, equipment, inventory, and chattels). The balance of the purchase price is based on the income or revenue the business has generated (or sometimes, what it is expected to generate in the future).

But income projections are difficult to quantify – markets change and the new owner may not have the same skills in running the small business as the seller did. The other side of the equation is cash. Every business seller will tell you that nine out of 10 prospective buyers who walked through the door, asked the small business seller if s/he would be willing to carry some of the financing.  That creates opportunities for them in the cash flow note business

Between limited available financing and limited buyers with cash, a seller's only option is often to become the bank him/herself! And most do – close to 80% of small business sales in this country involve seller financing! As a result, there are several hundred billion dollars of private business notes stagnating in sellers' hands, sellers who need cash flow for new small business ventures or other business activity.  The cash flow note market is huge!

Fortunately, the private cash flow marketplace offers an alternative "financing" arm for these business note holders. Certainly not every business note will be marketable, particularly given the context of the high risk many of these cash flow notes are created in. But the opportunity is there for many of these small business sellers to convert these cash flow notes to meet their cash needs.

Keep an eye out for those of your clients who may benefit by selling their small business note and feel free to contact us.  We can put you on our National Note Partner network and very quickly expose your cash flow note to hundreds of interest buyers who are in the business of buying and selling cash flow notes.