What Are Business Notes?

Written by Patricia Skinner
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What are business notes? Sometimes when a business is sold, the buyer does not have adequate funds for a complete purchase. At that point, the buyer and seller agree on a down payment and sign a contract specifying how the remaining payments are to be made over time. This is a business note.

Buying Business Notes

A business note is similar to a mortgage but the property involved is the business itself. Private mortgage note buyers also will buy business notes. These business notes can be for all kinds of businesses such as restaurants, convenience stores, florists, medical or professional practices, dry cleaners, printers, and many more.

The process of selling mortgages and what are known as business notes is easy and fast, because the investors provide tremendous liquidity for the transaction. The underwriting requirements for the purchase of business notes include a substantial down payment, good credit for the buyer, four months seasoning with excellent pay history, and a fully amortized note in first position. The business note can then be converted into cash.

So the answer to the question, what are business notes, is that they are instruments very similar to land contracts. The private mortgage buyer will see the business note as collateral for asset based lending. This is non-bank lending which encourages capital equipment purchases and business growth.

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