Pennsylvania Commercial Note Sale

The Note

The seller had financed the sale of a retail food franchise location in Hellertown, Pennsylvania in February 2025. The business is a well-known frozen dessert franchise operating from a leased commercial location under a 10-year lease. The franchise had been in operation since 1999, though the buyers relocated to this particular location at the time of sale. The buyers already owned and operated a second franchise location in a nearby town, giving them direct experience running the same business model.

The original sale price was $312,500, with the buyers putting $62,500 down (20% of the purchase price). That left an original note amount of $250,000, structured as a 10-year loan at 10% interest with monthly payments of $3,303.77. The note was secured in first position with a UCC filing and included a callable balloon provision after February 2027 at the lender's discretion. By the time this file reached our desk, the borrowers had made 11 consecutive on-time monthly payments, bringing the unpaid principal balance down to $234,664.52.

How We Evaluated This Note

Commercial notes trade at deeper discounts than real estate notes on the secondary market. The fundamental reason is collateral risk. When a borrower defaults on a mortgage note, the lender can foreclose on a property — a tangible asset with a relatively liquid resale market. When a borrower defaults on a commercial mortgage note, the recovery process can involve more complex collateral considerations depending on the property type and lease structure. Special use commercial properties are harder to re-tenant and liquidate than standard residential homes. That risk premium is reflected in every commercial note purchase price.

That being said, this particular commercial note had several factors working in its favor. The 20% down payment meant the buyers had $62,500 of their own money invested in the property. The 10% interest rate produced strong monthly cash flow of $3,303.77, which gives the investor attractive yield. The buyers were experienced franchise operators who already owned a profitable second location — not first-time operators learning on the job. The franchise itself had been operating since 1999, which provides a long track record of the brand and location's viability. And the borrowers had made 11 consecutive on-time payments, which — while still less than a year of seasoning — was a positive indicator.

The property financials also supported the note's serviceability. With a net operating income of $75,000 per year and annual note payments of approximately $39,645, the debt service coverage ratio was roughly 1.9x — meaning the property generated nearly twice the income needed to cover the note payments. This is a strong coverage ratio and one of the factors we evaluate closely on every commercial note.

The 72.5% pricing reflects the inherent risk premium on commercial notes as an asset class, not a flaw in this particular note's structure. A residential note with comparable fundamentals (20% down, 10% rate, clean payments) would typically trade in the 80-90% range. The difference is entirely attributable to collateral type.

What the Seller Received

The seller received $170,131.78 in cash at closing, which represented 72.5% of the unpaid principal balance of $234,664.52. The transaction closed on March 15, 2026. All costs associated with the sale were paid for by the purchasing entity. The seller paid zero out of pocket to complete the transaction.

What This Means for Commercial Note Holders

The pricing on this commercial mortgage note reflected the specific characteristics of the collateral and the lease structure, as well as the seasoning and borrower profile at the time of sale. But this deal also shows that a well-structured commercial note — with a solid down payment, strong interest rate, experienced borrowers, and clean payment history — can still achieve meaningful liquidity for the seller.

For anyone considering seller financing a commercial property sale, we would encourage you to read our guide on how to create a valuable commercial note before you close. The terms you set on day one — particularly the down payment, interest rate, and documentation — will directly affect what your note is worth if you decide to sell it later. Filing a UCC lien (as the seller did in this case) is essential for establishing your security interest in the collateral.

We buy commercial notes nationwide, including franchise notes, restaurant notes, retail notes, and service commercial notes. If you hold a commercial note and want to know what it is worth, we provide free, no-obligation quotes within 48 hours. Good luck.