Sometimes. An unsecured promissory note can be sold, but few note buyers bid on them and some notes draw no offer at all. Where one does sell, the price rests almost entirely on how strong the payer is.
First, check that it really is unsecured
Holders sometimes assume a note is unsecured when a second document says otherwise. Look through your closing papers for a mortgage, a deed of trust, a security agreement or a title naming you as lienholder. If you sold a business, there may be a security agreement over the equipment or inventory, which would make yours a secured business note with a wider market. What the note itself does and does not include is covered on the promissory note page.
Why the market is so small
An unsecured note is a written promise to pay with no collateral behind it, which sets it apart from nearly every other type of note buyers deal in. Collateral is an asset, such as a house, that the holder can claim if the payer defaults. Without it, the remedy is to sue the payer, win a judgment and then try to collect.
Buyers of real estate notes build their pricing on the property: its value, the equity in it and their place in line. An unsecured note gives them none of that, a contrast drawn out in secured vs unsecured notes. Those who will look at unsecured paper want a high return on the money they put in, and that means a price well below what is owed.
What makes one saleable
The payer comes first. An established business with financial statements, or an individual with good credit and visible income and assets, gives a buyer something to assess. A long payment record that you can prove with bank deposits or a servicer’s history comes next, and a short remaining term helps because two years of payments carry less risk than ten.
The paper matters as well. A properly drafted note has clear terms, signatures, a default clause and a provision for collection costs. If the payer is a company, a personal guarantee signed by an owner with real assets gives the buyer a second person to pursue. Balance plays a part too: a buyer’s review and paperwork cost much the same on any note, so a very small balance may not justify them.
At the other end, a handwritten IOU between friends or relatives, a note with no payment history, one where the payer has already stopped, or one against a payer with no assets and poor credit is unlikely to find a buyer. The money may well be owed, but a buyer has no way to price the risk of collecting it.
A note that sits between those two ends is the kind worth testing. Because the payer is the whole case for it, put their details alongside the note when you send it to us for pricing: who they are, how long they have paid, and what you know of their income or business. If we do not expect a buyer to bid, you will hear that from us at the start, with the reason.
One legal point
Selling a note you already hold is generally a private sale of a debt. In some circumstances the way a note was created or is offered can bring securities rules into play, and that turns on the facts, so ask an attorney if you are unsure about yours.
If no buyer bids
A missing bid, or one too low to accept, leaves these routes open:
| Route | How it works | What to weigh |
|---|---|---|
| Keep collecting | Hold the note to the end | You receive every payment if the payer keeps paying |
| Offer the payer an early payoff | Accept a reduced lump sum to settle the note | A forgiven amount may have tax effects for both sides |
| Add security | The payer agrees to pledge an asset | Turns the note into a secured one, but needs the payer’s consent and an attorney to document it |
| Enforce it | If the payer is in default, pursue the debt through the courts | Time and legal cost, with no certainty of collecting |
The early payoff is the one to look at first, because the payer is the one person for whom the note is worth close to its full balance. That makes selling your note back to the borrower a different negotiation from selling to an outside buyer.
Before you raise it, work out the lowest lump sum you would accept, because the payer will ask. Then talk to a CPA before you agree a figure, since the tax treatment of a discounted payoff depends on your situation.
Related questions
Why would a buyer want a note with no collateral?
For the return. A buyer who is confident in the payer can earn a higher yield on an unsecured note than on a secured one. That confidence has to come from evidence: financials, credit and a long payment record.
Does a personal guarantee make my unsecured note easier to sell?
It helps. A personal guarantee from someone with real assets gives a buyer a second person to collect from. It does not create a lien, so the note is still unsecured and still priced with caution.
Will you tell me if my note cannot be sold?
Yes. If we do not expect a buyer to bid, we tell you at the start and explain why. Knowing that early is more useful to you than waiting on offers that will not arrive.