How the Note Business Has Changed in the Last Few Years

I recently received a call from a note holder who wanted to sell a cash flow secured by golf course water pumps. I have been in the note business going on 30 years, and this was a first. I took some basic information and told him I would get back to him shortly.

This call started me thinking of how radically the note business has changed in the last few years. In the “good old days”, this would have been a no-brainer. In about 30 seconds, it would have been obvious that there were no takers for this type of loan – end of conversation. The good news: no wasted time; the bad news: no possibility of earning a fee.

The same day, I received a call from a flustered, new note broker (let’s call him Ned) seeking my help. Ned had a call about something as obscure as golf course water pumps and did not know what to do. It occurred to me that we were both in the same boat – me with my 30 years’ experience and him with his two months experience- we were faced with an unfamiliar situation. The only difference is how we perceived and handled the situation. We had the same exact resources at our disposal. These resources are called funding sources.

The sole reason for the radical changes in the note (cash flow) business is the arrival and competition of institutional buyers. From an historical perspective, it is important to understand that this competition, which came into play just a few years ago, forced funding sources to buy merchandise that they previously would not touch. All note brokers, old and new alike, are aware of the existence and importance of funding sources in providing capital for cash flow transactions.

The most important change that this competition fostered, from the perspective of the new note broker, is support; in other words, user-friendly funders. All funding sources want your business and will go out of their way to walk you through your deals.

I recently taught a class for new students and was met with some skepticism because they could not believe that major financial players would offer much help. No wonder; most of their previous experience with financial institutions was less than supportive.

That is where we come in, as our responsibility is to provide training to assist new brokers on a day to day basis. This type of support was virtually nonexistent until recently, and now we serve as the educational arm for our major funding sources to offer support to new brokers.

This gets me back to Ned. Like many new note brokers when confronted with a new situation (and when you start out, everything is new), he became flustered. It is not necessary or even possible for any broker, experienced or not, to have a working knowledge of every type of cash flow note.

The process is always the same. (1) Stay calm. I realize this is not always easy. Ask just enough questions to make sure that what the caller has is really a cash flow note that you can potentially make money on. Most new note brokers tend to talk too much and listen too little. Learn and practice saying “I will check with my sources to see if they have an interest in this transaction and get back to you”. (2) Get help. Take advantage of all the support that is available. Call a funding source or master broker. If they do not handle that type of transaction, they can probably point you to a source that does. (3) Follow their advice. Which will probably be to get some necessary additional information.

Ned and I were really in the same boat – an unfamiliar situation – even though the difference in experience was almost 3 decades. This really is not a difficult business. Obtain leads, gather information, get help. Do not make it any more difficult than it has to be.

Good luck. Call if you have questions or if I can help your note business.