Notes aren’t just for real estate! Join us for an in-depth interview on brokering business notes.
Nominated as the Best Business Note Buyer of 2020, we interviewed Marc Rouda, EVP with Security Financial Services. Their family-owned business has been investing in business notes for 30 years and they have some amazing insights to share.
What Types of Business Notes Does Security Financial Purchase?
- Seller Financed Business Notes Nationwide
- Smaller SMBs with less than $1.5M-$2M in annual revenues
- 1st position only
- Performing notes only (occasionally will purchae re-performing)
- Maximum bid amount of $500K to $600K
- Investment-to-Value (ITV) no higher than 80%
- At least 1 month of seasoning or payment history
- Maximum bid up to 84 months
What Factors Impact Pricing and Approval of Business Note Purchases?
- ITV & Seasoning
- Terms of Financing
- Buyer Personal Guarantee (PG)
- Buyer Has Maintained Good Credit Since Purchase
- Strong Seller’s Business Total Revenues (TR’s)
- Adequate Debt-Service Coverage Ratio (DSCR) levels
- Type of Business & Time in Business (TIB)
A Business Note Purchase Example
| Business Note Details | 1st Lien — Performing — Business Assets Only |
| Type of Business | SC Media Company – creates video and drone footage of real estate for sale |
| Sales Price | $540,000 |
| Down Payment | $108,000 |
| Note | $432,000 |
| Terms | 6% rate at $7,159.59/mo for 72 months |
| Seasoning | 38 payments made with 34 payments left |
| Unpaid Balance | $223,344 (41% LTV) |
| Full Buyout | $192,121 (86% UPB) |
| Investor’s Yield | 17% |
| Broker Earned Referral Fee |
Dedicated to Business Note Brokers
Security Financial has long been dedicated to supporting the note broker community. Marc shared that 92% of their closing come from broker referrals with 74% of the brokers being repeat clients or master brokers. Most of their brokers also work with real estate notes or other cash flows in addition to business notes. A typical commission ranges from 4% to 17% with smaller percentages associated with larger balance notes. The overall average commission was 7% of the funding.
Key Statistics For Business Note Brokers
A look at past averages for business note purchases helps brokers can help brokers with their marketing and structuring. These important statistics were shared for the interview:
- 100K Average Balance Purchased
- High of $485k and Low of $19k
- 84% Average Purchase Price
- 16.7% Average Yield
- 37 Average Months Purchased
- High of 78 and Low of 12 months
- 67% Average LTV – 33% Equity
- 65% Full Purchases
- 35% Partial or Remainder Purchases
What Has Been the Impact of COVID On Business Notes?
The SBA has been dedicating a lot of time to the support of existing businesses with the administration of PPP loans and other programs in response to the pandemic. This has created an even greater need for financing options for the new sales of businesses.
Earlier this year, Security Financial shared this email update with their community:
“We’re still actively purchasing Notes.
Some business sectors have thrived because of the pandemic and the government stimulus. This is the case with ecommerce, software, housing/home renovation, and even some manufacturing & industrial. Many other businesses, like auto/auto repair, medical/dental, veterinary, etc., saw little to no drop off from pre-pandemic levels. And, as we come out of the pandemic, we believe many businesses – especially restaurants and bars – will recover.
The bottom line: many small businesses have weathered the storm and we’re optimistic about a strong recovery – and we’re ready to buy more Business Notes.”
For more details and pricing requests, you can visit www.sellbusinessnote.com or email marc@secfin.com. Marc Rouda also invites you to call his direct line at 415-651-4359 or the office at 800-982-5945. You can also network with him on LinkedIn at https://www.linkedin.com/in/marc-rouda-60174/
Security Financial Services is a business note buyer included in our annual Directory of Note Buyers and Service Providers.
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