Shark Tank and Note Buying

If you are one of the few who is not familiar with the TV show Shark Tank, this is what happens: A business owner pitches a panel of investors, offering a stake in his company in exchange for a financial investment. The Sharks ask pointed questions, and if they like the answers they will make an offer. But, if the business is too new, or the market is not there, or the owner seems not to have the ability or vision to succeed, or the Sharks view the owner as not one they want to work with, or he is overvaluing his company and asking for too much money for too little equity, he will hear "I'm out." To the Sharks, the business is not investable.

Similarily, this is what we do in the note business. Given what we are being told initially by the note holder, does his note appear to be marketable? Will further investigation allow us to say "Yes, your note is investable, here is our offer, we believe we will get our money back and make a profit." If on the other hand, the vibe is negative, the noteholder will hear "Sorry, we are going to pass."

A few years back at a note industry meeting, a presenter shared that approximately 70% of owner carry notes are NOT marketable - no-one will buy them. My own informal experience says about 50% of the folks I talk to have a note that is not investable. Why?

Briefly, we won't buy a note that is NOT in 1st position. We will not buy a note that is defaulting - payments are not being made. We will not buy a note where the property - residential or commercial - is NOT occupied. We may not buy a note where the property is in disrepair or in an isolated or crime ridden area. We may not buy a note that has poor terms, terms that equate to a lack of commitment from the buyer and too much risk for the note holder. We may not buy a note where the property has potential environmental issues. We may not buy a note where the note payor has an unstable work history or poor credit.

The Sharks are evaluating the person pitching them, and deciding if this person can execute and build his business with their help. We are evaluating the seller, his buyer, the property, the note terms, payment history, etc. and deciding if this is a worthwhile place for our investment dollars. The Sharks will be "living" with the business owner much like we will be "living" with the note payor. So, we need to feel secure that he can perform according to the note terms he agreed to. If we believe he can, we are all in.

If you would like to discuss your own situation, please contact me and we will answer your questions and see how we can help you.