I am buying a business. What is a fair % for a previous owner to carry a note?

Answer 1

Fair is always a pretty tough call. Here are some thoughts.

1. You want to make sure the percentage on the note is reasonable for known net income from the business. It really isn't a question of fair as much as a question of even if you should buy the business but if the business can't generate the net income to cover note.

2. Compare things to other financing options. You have credit cards at 20+% and equity options of around 6%. See what the cost of the money (% rate) would be. Most bankers can get you ball-park numbers.

3. What kind of risk is involved on the note? The fact is interest rates are essentially numbers associated with "risk". Credit cards are expensive because they are not secured and equity lines are cheaper because you are borrowing against an asset. If the note is against a business that the seller considers "not risky" then the note should reflect less risk so it would be closer to the equity line. However, if they are worried about the risk of the business and are trying to charge a high interest rate than this should be a red flag!

With no knowledge what-so-ever I would have to guess that about 8% to 10% would be about right. That is prime +/- about a 1% point.

Of course you would really be better off discussing this with an advisor.

Answer 2

it is a quetion ultimate asked an area lawyer that can evaluation all the suitable information. the different answer you get right here could be hypothesis at ultimate, and valueless or perhaps risky which you would be able to act inthe plenty extra probably case.

Answer 3

Never buy another business, A good business is never sold to another person

Answer 4

Fairness has nothing to do with it. It's whatever you and the seller can agree on.