A business note is a debt instrument where one business owes another money over time—typically from a seller-financed business sale or equipment financing.
If you’re holding one and thinking about selling it, here’s what you need to know up front: payment performance is the single most important factor in whether your business note can be sold.
Not the interest rate. Not the collateral. Not the story behind the deal. Just whether the borrower is paying on time.
Many sellers overestimate the market for non-performing business notes. The reality is that most non-performing business notes cannot be sold at all. The buyer pool is tiny, the pricing is brutal, and the process usually goes nowhere.
This article breaks down what performing and non-performing mean in the context of business notes, why the distinction matters so much, and what sellers should realistically expect.
What Is a Performing Business Note?
A performing business note is one where the borrower is making regular, on-time payments with no unresolved defaults.
That’s the standard. Not “mostly current” or “generally okay.” On time. Every time.
A performing note means:
- Payments arrive when they’re supposed to
- The payment amount matches what’s contractually owed
- There’s no active forbearance, modification, or workout agreement
- The borrower hasn’t triggered default clauses
Performing notes are ideal for note buyers because they represent predictable cash flow. The payment history speaks for itself, and the underwriting is straightforward.
Key Characteristics Buyers Look For
When buyers evaluate a performing business note, they’re looking for:
- Consistent payment history – Ideally 6-12 months minimum, with no gaps or late payments
- Stable underlying business – The company making payments isn’t on the brink of failure
- Clear note terms – The agreement is enforceable, the amounts are documented, and the security is in place
- No active disputes or restructures – The deal is clean, not something that’s been renegotiated multiple times
If your note checks these boxes, there’s a real market for it.
What Is a Non-Performing Business Note?
A non-performing business note is one where the borrower has stopped making payments, is making partial payments, or is in default.
There’s no ambiguity here. If the agreed-upon payments aren’t happening, the note is non-performing.
Common signs include:
- Missed payments – Even a single missed payment can shift a note into non-performing territory
- Broken agreements – The borrower renegotiated terms once and then defaulted again
- Default or workout status – The borrower is officially in breach, and you’re either in collections or trying to avoid them
Non-performing business notes are extremely difficult to sell. In most cases, they can’t be sold at all.
Why Non-Performing Business Notes Are Extremely Hard to Sell
The market for non-performing business notes is almost nonexistent, and there are specific reasons why:
Business cash flow risk – Unlike real estate notes where the underlying asset (a house) has relatively stable value, a failing business deteriorates fast. Inventory disappears. Equipment breaks. Customer relationships evaporate.
Lack of standardized recovery paths – With mortgage notes, there’s a well-established foreclosure process. With business notes, enforcement is messy, expensive, and unpredictable. Every situation is different.
Limited investor appetite – The note investor community willing to buy non-performing business notes is tiny. Most note buyers focus exclusively on performing assets.
High uncertainty in enforcement – Even if you have collateral, liquidating business assets is difficult. Used equipment, stale inventory, and disputed receivables rarely recover meaningful value.
This isn’t a Seller Edge Capital preference. It’s market reality.
Why Performance Matters More for Business Notes Than Almost Any Other Asset
Business notes are underwritten on cash flow, not asset value.
When a note buyer evaluates a mortgage note, they can fall back on the property’s value. Houses can be appraised, foreclosed on, and resold through standardized processes. There’s a floor to the downside.
Business notes don’t have that safety net.
When a business note goes non-performing:
- The collateral often has limited liquidation value
- The business itself may be failing or already failed
- Recovery costs can exceed recovery proceeds
This is why payment history replaces traditional “guarantees” of value. If the borrower is paying, the note works. If they’re not, it doesn’t matter what the collateral is supposed to be worth—it’s probably not worth much in practice.
Is There a Market for Non-Performing Business Notes?
Let’s be direct: in most cases, no.
The buyer pool for non-performing business notes is extremely small. The few buyers who even consider them typically price them at deeply discounted rates—often 10-20 cents on the dollar or less.
And even at those prices, deals often don’t close because due diligence reveals enforcement problems, worthless collateral, or other fatal issues.
For sellers, this means pursuing a sale of a non-performing business note usually wastes time and energy. You’ll gather documents, answer questions, and ultimately get rejected or receive an offer so low it feels like an insult.
Many sellers are better served by fixing performance first—working with the borrower to cure the default—or pursuing legal remedies directly if recovery is genuinely viable.
What About Notes With Recent Payment Issues?
Not all payment disruptions are created equal.
A note that missed a few payments during an economic shock but has since returned to normal is different from a note that’s been in default for a year with no resolution in sight.
Temporary disruptions happen. Businesses face cash flow crunches, seasonal slowdowns, or one-time crises. Buyers understand this.
What buyers look for is restored performance—evidence that whatever caused the disruption has been resolved and payments have resumed.
When a Business Note May Become Sellable Again
A note that was recently non-performing may become sellable again if:
- Payments resume – The borrower starts paying again, not just promises to
- Several months of on-time payments – Buyers want to see a track record, typically 6-12 months minimum
- Business stabilizes – The underlying company shows signs of recovery and sustainable cash flow
- Clear explanation for prior interruption – If there’s a legitimate reason for the missed payments and the problem has been fixed, buyers may consider it
This isn’t a guarantee. Every note is different. But if you’re holding a note that was non-performing and is now current, you’re in a fundamentally different position than someone with an ongoing default.
How Buyers Evaluate Performing Business Notes
When a buyer looks at a performing business note, they’re evaluating several factors:
Length of payment history – A note with 24 months of consistent payments is far more attractive than one with only 3 months of history.
Business cash flow coverage – Does the business generate enough revenue to comfortably cover the monthly payment, or is it barely scraping by?
Industry risk – Some industries are inherently more volatile than others. A note tied to a stable service business is different from one tied to a restaurant or retail operation.
Collateral and guarantees – While cash flow matters most, strong collateral and personal guarantees reduce risk and improve pricing.
Remaining term and note size – Buyers consider how much is left to pay and whether the note size fits their investment criteria.
None of this is a promise or an offer. Every note is evaluated on its own merits.
Common Seller Misconceptions About Non-Performing Notes
Sellers often believe things about non-performing business notes that simply aren’t true:
- “Someone will buy it at any price” – Not true. Many non-performing business notes have no market at any price.
- “Collateral makes non-performance acceptable” – Collateral helps, but it doesn’t replace cash flow. If the borrower isn’t paying, the collateral’s theoretical value matters far less than sellers think.
- “Buyers will fix the problem later” – Most buyers don’t want a project. They want passive income from a predictable asset.
Understanding the market as it actually exists—not as sellers hope it exists—saves everyone time.
Should You Wait Before Selling a Business Note?
This depends entirely on your situation, but here’s the honest answer:
Waiting to re-establish performance can materially improve outcomes. A note that’s been current for 12 months after a brief disruption is far more sellable than one that’s currently in default.
Rushing a sale of a non-performing note often leads nowhere. You’ll spend time and effort trying to sell something that has no real market.
Timing matters more than urgency. If you need liquidity immediately and your note is non-performing, you’re in a difficult position. But if you can afford to wait and the borrower is capable of resuming payments, waiting 6-12 months to build a clean track record can completely change your options.
Performing vs. Non-Performing Business Notes — Side-by-Side Comparison
| Factor | Performing Note | Non-Performing Note |
| Buyer demand | Strong | Minimal to none |
| Sale likelihood | High | Very low |
| Typical pricing behavior | Fair market value based on yield | Extreme discount (if sellable) |
| Due diligence intensity | Standard documentation review | Extensive, often leads to rejection |
| Time to close | 2-4 weeks typical | Uncertain or won’t close |
How Seller Edge Capital Approaches Business Notes
Seller Edge Capital is an evergreen, private debt fund that uses internal capital to purchase business notes. We’re not brokers. We don’t pass notes to other buyers. We evaluate what you have and make decisions using our own funding.
Seller Edge Capital typically focuses on business notes with demonstrated payment performance. We’re looking for predictable cash flow from stable businesses—notes where the borrower has a track record of paying on time and the underlying business shows sustainability.
We prioritize certainty and execution over speculative situations. If your note is performing and fits our criteria, we can usually provide an answer quickly. If your note is non-performing, we’ll be honest about whether there’s a viable path forward or if you’re better off pursuing other options.
We’re not trying to be all things to all sellers. We’re focused on what we do well: acquiring performing business notes using our own capital.
See if your business note qualifies or learn how selling a business note works by exploring our buyer resources.