As with any type of note, there are several strong ways to market for business notes. Some cost money. Some cost nothing but your time, which is valuable and not to be wasted. The key is to strike a balance between the two, based on your budget (or lack of one) and the time you have for one-on-one marketing, networking and follow-up.
You don’t need expensive ads in numerous publications to run an effective campaign. Remember that advertising is not marketing. Advertising is one form of marketing. Don’t confuse the two.
Why business notes are created
Before you build a marketing plan, understand how business notes come about. The better you understand your prey, the better prepared you’ll be for the hunt. As the saying goes, only an idiot brings a knife to a gunfight. Knowing why business notes are created leads you to where to find them.
Banking is curious. When this was written, interest rates had hit record lows in 1998 and 1999, yet qualifying for financing was as hard as ever. Very creditworthy people are turned down every day, and not necessarily for bad credit. Being self-employed, having just moved to the state without two years of local tax returns, or starting a new job are all reasons banks say no.
It’s even harder to borrow to buy a small business. Most banks don’t make small business loans, whatever their full-page ads say about being the small businessman’s friend. If there were so much money available, the author argues, this would not be true:
80% of small business sales in the U.S. are seller financed.
The cycle that turns sellers into note sellers
Every business seller will tell you that nine out of ten prospective buyers asked whether the seller would carry some of the financing. Sellers start out hoping for an all-cash buyer. Eventually they realize that if they’re serious about selling, they’ll have to become the bank. They take a down payment and let the buyer pay the balance over time.
The problem is that most sellers are entrepreneurs, like you and me. The monthly payments are nice for a while, but eventually the note holder remembers why he sold in the first place: to buy that other business down the road. The down payment isn’t enough to buy it (unless that seller will carry paper, which is an invitation to go talk about that note too), and he needs cash. It’s a cycle:
- Buyers can’t get bank financing.
- Sellers have to carry paper.
- Sellers later need cash.
- Sellers sell all or part of the remaining payments.
Picture the volume of business notes already out there, and the new ones created every day nationwide. So where are all these notes hiding?
Business brokers: your number one source
Business brokers are the top source of business notes in the country. A very high percentage of small business sales go through them, and if 80% of those sales involve seller financing, a broker’s filing cabinets are a vault waiting to be cracked.
Brokers get calls all the time from past clients asking whether they know anyone who would buy the note created when the business was sold. Most brokers know the note can be sold but have few actual investors willing to take on these high-risk notes. That’s where you come in.
Get on a first-name basis with every business broker in your city. Instead of turning past clients away, they can start referring them to you. You can become the “alternative financing arm” of the local business brokerage community.
Why helping you helps the broker
As a business note buyer you are not a lender. But if sellers carry paper on 80% of small business sales, you can become an integral part of the cycle.
Past sellers are prime candidates to buy the broker’s current and future listings. The trouble is, they aren’t liquid, because their capital is tied up in the note. If a seller can cash out all or part of the note, there’s a good chance he could buy one of the broker’s listings. So by referring note holders to you, the broker helps himself: the note holder gets liquid, buys another business, and the broker earns another commission.
Put your brochure in the broker’s office
Design a good brochure explaining how your services help an existing note holder and anyone about to sell a business and carry the paper. Show the broker that your services are an added benefit for his clients.
Your goal is permission to keep an acrylic brochure stand in the office, ideally at the receptionist’s desk and in the room where closing documents are signed. It can be a strong boost to your marketing and a steady source of referrals.
Classified ads and for-sale-by-owner sellers
Check the “Business Opportunities” section of your local paper. You’ll see plenty of businesses for sale, some listed by business brokers and some by owners (for-sale-by-owners, or FSBOs).
Each broker listing is an invitation to visit another brokerage and have the conversation above, along with asking about the business being advertised.
Each FSBO is a chance to call and explain how you can help with a seller-financed note if the owner doesn’t find an all-cash buyer. You and I know there’s an 80% chance a note will be created, but don’t imply that the seller will fail to find an all-cash buyer.
Reach sellers before the note exists
Working with notes that technically haven’t been created yet is the way to eliminate the competition.
Educate sellers before the sale and before the note is written, and you become an integral part of the transaction. When it’s time to sell the note, it’s unlikely the note holder will work with anyone but you.
