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Your borrower sold a business on a note: Should you count on the payments?

When a business is sold and the seller carries back a note, what happens when the buyer does not pay?

And if the business assets are collateral for that note but the former owner accepted 2nd position behind the banks, what then?

In a post in his Businomics Blog on Selling a business on a note: 9 Tips for Success, Bill Conerly lays out the pros and cons. He then suggests 9 steps your borrower might have taken to make a good decision and improve their options if the buyer does not pay.

If you have any borrowers who hold a note or contract receivable based on the sale of their business and your analysis relies heavily on them continuing to collect, give this a read.

You’ll come away with some good questions to ask the borrower before you decide…
Do I count the income on the contract or not?

About the Author
Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis. She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans. Creator of the Tax Return Analysis Virtual Classroom at www.LendersOnlineTraining.com, she speaks at banking associations on risk management, lending and director finance topics.