David C Barnett Small Business and Deal Making M&A SMB Don't Buy Business Notes with David Barnett
Oct 30, 2025
David C. Barnett, a small-business deal expert and author, sheds light on the pitfalls of investing in business notes. He highlights the risks of reliance on cash flow and goodwill rather than tangible property. Topics include the complexities of lien priority, non-compete enforceability, and the importance of thorough due diligence. Barnett also warns about misleading financial statements and the necessity of industry knowledge to mitigate fraud. Plus, he shares insights on networking for private deals and the dangers of the secondary market.
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Verify Liens And Subordination Terms
- Check lien priority and legal paperwork before buying a business note.
- A subordinated note (e.g., behind an SBA loan) often leaves you with little control or remedy.
Use Practical Non-Competes Carefully
- Insist on reasonable non-competes tied to market and time to protect value.
- Expect legal enforcement to be costly and often impractical for small buyers.
Buy Short Payment Tranches First
- Consider buying short slices of payments (12–18 months) instead of full long-term notes.
- Short purchases reduce exposure to long-term business unknowns while yielding income.
