# SFSB-4: Due Diligence Checklist
**Seller Finance Standards Board | Published: 2026 | Version 1.0**

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## Purpose
This checklist establishes the SFSB standard for due diligence in connection with the purchase of a seller-financed business note. Thorough, organized due diligence is the foundation of sound note investing. This checklist is designed for use by note buyers, their counsel, and any servicer conducting pre-acquisition review. It should be completed prior to expiration of the due diligence period under the purchase agreement.

## Scope
This checklist applies to the purchase of seller-financed notes secured by business assets, commercial real property, or both. Some sections may not be applicable to every transaction; mark inapplicable sections "N/A" with a brief explanation. Omission of applicable items without notation is treated by the SFSB as a due diligence deficiency. This checklist does not substitute for legal counsel review or formal title examination where required.

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## TRANSACTION REFERENCE

**Deal / File Reference:** ____________________

**Note Seller:** ____________________

**Prospective Buyer:** ____________________

**Assigned Reviewer:** ____________________

**DD Period Expiration Date:** ____________________

**Date Checklist Initiated:** ____________________

**Date Checklist Completed:** ____________________

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## SECTION 1 — NOTE DOCUMENTATION

*The promissory note and its associated instruments are the foundational documents of the transaction. Every item in this section is required unless marked N/A with explanation.*

| # | Item | ☐ Received | Date Received | Notes / Issues |
|---|---|---|---|---|
| 1.1 | Original promissory note (wet-ink original, or certified copy with explanation of why original is unavailable) | ☐ | | |
| 1.2 | All allonges and endorsements to the Note (chain of title must be complete and unbroken from original payee to current Seller) | ☐ | | |
| 1.3 | Any and all amendments, modifications, or restatements of the Note | ☐ | | |
| 1.4 | Forbearance agreements, deferral agreements, or written loan workouts | ☐ | | |
| 1.5 | Complete payment history ledger (from origination to present), showing: scheduled payment date, amount due, amount received, date received, running principal balance | ☐ | | |
| 1.6 | Amortization schedule (original and, if Note has been modified, current) | ☐ | | |
| 1.7 | Payoff statement as of a stated good-through date | ☐ | | |
| 1.8 | Seller's Disclosure Statement (SFSB-2 or equivalent) | ☐ | | |
| 1.9 | Evidence of Seller's title to the Note (assignment chain, if Note was previously sold and repurchased) | ☐ | | |
| 1.10 | Personal Guaranty (if any), original or certified copy | ☐ | | |

**Section 1 Status:** ☐ Complete  ☐ Outstanding items (list above)  ☐ N/A (explain): ______________________

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## SECTION 2 — COLLATERAL — BUSINESS / ASSET

*Complete this section for notes secured by business assets, UCC collateral, equipment, accounts receivable, or other non-real property collateral.*

| # | Item | ☐ Received | Date Received | Notes / Issues |
|---|---|---|---|---|
| 2.1 | UCC-1 Financing Statement (filed copy with file stamp from Secretary of State) | ☐ | | |
| 2.2 | UCC lien search results (search in: state of organization, state where collateral is located, any other relevant jurisdiction) — confirm no senior or conflicting filings | ☐ | | |
| 2.3 | UCC Continuation Statements (confirm UCC-1 has not lapsed — effective for 5 years; confirm continuations filed if note is older) | ☐ | | |
| 2.4 | Security Agreement (executed agreement identifying the collateral and granting the security interest) | ☐ | | |
| 2.5 | Asset Purchase Agreement or Business Purchase Agreement (the underlying deal document creating the seller-finance obligation) | ☐ | | |
| 2.6 | Business Confidential Information Memorandum (CIM) or Broker Opinion of Value, if available | ☐ | | |
| 2.7 | Business financial statements: Income Statement and Balance Sheet (2-3 most recent fiscal years) | ☐ | | |
| 2.8 | Business federal tax returns (2-3 most recent years, all schedules) | ☐ | | |
| 2.9 | Most recent interim financial statements (if year-to-date financials available) | ☐ | | |
| 2.10 | NAICS code confirmation and industry classification | ☐ | | |
| 2.11 | Secretary of State entity status (current, good standing) for borrower and any guarantor entities | ☐ | | |
| 2.12 | Equipment list or asset inventory, if applicable | ☐ | | |
| 2.13 | Key customer / revenue concentration analysis | ☐ | | |

**Section 2 Status:** ☐ Complete  ☐ Outstanding items  ☐ N/A — no business asset collateral

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## SECTION 3 — COLLATERAL — REAL PROPERTY

*Complete this section for notes secured by a deed of trust, mortgage, or land contract on commercial real property. Skip if no real property collateral.*

| # | Item | ☐ Received | Date Received | Notes / Issues |
|---|---|---|---|---|
| 3.1 | Title commitment or preliminary title report (from a licensed title company) | ☐ | | |
| 3.2 | Recorded deed of trust or mortgage (copy with recording stamps; confirm it secures the Note being purchased) | ☐ | | |
| 3.3 | Lien position confirmation (confirm first, second, or other position; no senior liens other than those disclosed) | ☐ | | |
| 3.4 | Current mortgage statements for any senior liens (confirm balance and payment status) | ☐ | | |
| 3.5 | Property appraisal (commercial MAI appraisal; confirm within 12 months or obtain updated appraisal) | ☐ | | |
| 3.6 | Survey (current ALTA or boundary survey, if available) | ☐ | | |
| 3.7 | Property insurance binder (confirm property/casualty coverage in force; confirm Seller/Buyer as loss payee or additional insured) | ☐ | | |
| 3.8 | Flood zone determination | ☐ | | |
| 3.9 | Environmental / Phase I report (recommended for all commercial real property; required for any industrial, manufacturing, or fuel-related use) | ☐ | | |
| 3.10 | Property tax status (confirm taxes current; no outstanding assessments or delinquencies) | ☐ | | |
| 3.11 | Lease agreements (if property is leased; confirm rent rolls and lease terms) | ☐ | | |
| 3.12 | Zoning confirmation (confirm current use is permitted) | ☐ | | |

**Section 3 Status:** ☐ Complete  ☐ Outstanding items  ☐ N/A — no real property collateral

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## SECTION 4 — BORROWER BACKGROUND

*Background due diligence on the borrower is required on every transaction, regardless of collateral type.*

| # | Item | ☐ Received / Completed | Date Completed | Notes / Issues |
|---|---|---|---|---|
| 4.1 | Business credit report (e.g., Dun & Bradstreet, Experian Business) | ☐ | | |
| 4.2 | Personal credit report for personal guarantor(s), if applicable (requires written authorization) | ☐ | | |
| 4.3 | Secretary of State entity verification (current standing, registered agent, formation date, no dissolution or revocation) | ☐ | | |
| 4.4 | Judgment and lien search — business entity (state and county; all jurisdictions where borrower operates) | ☐ | | |
| 4.5 | Judgment and lien search — personal guarantor(s), if applicable | ☐ | | |
| 4.6 | Federal and state tax lien search (IRS and applicable state revenue agency) | ☐ | | |
| 4.7 | Bankruptcy search — business entity (PACER or equivalent; confirm no open or recent case) | ☐ | | |
| 4.8 | Bankruptcy search — personal guarantor(s), if applicable | ☐ | | |
| 4.9 | UCC lien search — borrower (confirm no undisclosed senior secured creditors) | ☐ | | |
| 4.10 | Google review search (business name + city; document rating, number of reviews, notable complaints) | ☐ | | |
| 4.11 | Better Business Bureau (BBB) profile (rating, accreditation status, number of complaints, resolution history) | ☐ | | |
| 4.12 | Yelp rating and review summary | ☐ | | |
| 4.13 | News and press search (business name and principal name; identify any adverse coverage) | ☐ | | |
| 4.14 | Principal background check (professional licenses, regulatory actions, prior business failures) | ☐ | | |
| 4.15 | Contractor / professional license verification (if applicable to business type) | ☐ | | |

**Section 4 Status:** ☐ Complete  ☐ Outstanding items  ☐ N/A (explain): ______________________

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## SECTION 5 — ORIGINATOR AND SERVICER

*Verify the origination and servicing chain to confirm the note was properly originated and is being properly administered.*

| # | Item | ☐ Received / Confirmed | Date | Notes / Issues |
|---|---|---|---|---|
| 5.1 | Loan origination documents (closing statement or HUD-1 equivalent for the underlying transaction, if available) | ☐ | | |
| 5.2 | Evidence of delivery of Note to Seller (assignment history, endorsement chain) | ☐ | | |
| 5.3 | Current servicer name, contact information, and servicing agreement (if third-party serviced) | ☐ | | |
| 5.4 | Servicer confirmation of UPB and payment status (independent verification from servicer's records) | ☐ | | |
| 5.5 | Escrow account statement (if applicable — confirm balance, monthly escrow deposit, most recent disbursements) | ☐ | | |
| 5.6 | Borrower notification history (confirm borrower has been notified of prior assignments, if any) | ☐ | | |

**Section 5 Status:** ☐ Complete  ☐ Outstanding items

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## SECTION 6 — LEGAL AND REGULATORY

*Legal and regulatory review should be conducted by or under the supervision of qualified legal counsel. Items in this section are the buyer's responsibility.*

| # | Item | ☐ Reviewed | Date | Notes / Issues |
|---|---|---|---|---|
| 6.1 | State usury compliance (confirm interest rate does not exceed the applicable usury ceiling in the state of origination at the time of origination) | ☐ | | |
| 6.2 | Licensing compliance in origination state (confirm originator complied with any applicable lending or brokerage licensing requirements at origination) | ☐ | | |
| 6.3 | Consumer vs. commercial characterization (confirm borrower is acting in a commercial capacity; Dodd-Frank SAFE Act and TILA/RESPA may apply if borrower is an individual purchasing a primary residence) | ☐ | | |
| 6.4 | State-specific seller finance disclosure requirements (some states impose mandatory disclosures on seller-financed transactions; confirm compliance at origination) | ☐ | | |
| 6.5 | Buyer's own licensing analysis (confirm Buyer holds any required licenses to purchase notes in the relevant jurisdiction) | ☐ | | |
| 6.6 | Review of any prior default notices, cure notices, or acceleration letters in the loan file | ☐ | | |
| 6.7 | Review of any forbearance, loan modification, or workout agreement | ☐ | | |

**Section 6 Status:** ☐ Complete  ☐ Outstanding items  ☐ N/A (explain): ______________________

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## SECTION 7 — FINANCIAL ANALYSIS

*Buyer's internal financial analysis. Complete prior to finalizing the purchase price and prior to expiration of the due diligence period.*

| # | Analysis Item | ☐ Completed | Date | Result / Notes |
|---|---|---|---|---|
| 7.1 | Loan-to-Value (LTV) calculation: Purchase Price ÷ Estimated Collateral Value | ☐ | | LTV: ______% |
| 7.2 | Loan-to-Cost (LTC) calculation (if Purchase Price differs materially from UPB) | ☐ | | LTC: ______% |
| 7.3 | Debt Service Coverage Ratio (DSCR): Net Operating Income ÷ Annual Debt Service (if business financials available) | ☐ | | DSCR: ______x |
| 7.4 | Yield / IRR at proposed Purchase Price (model all scheduled cash flows) | ☐ | | IRR: ______% |
| 7.5 | Yield / IRR on Fully Loaded Cost (Purchase Price + all transaction costs) | ☐ | | EIR on FL: ______% |
| 7.6 | Stress test: yield at 10% higher discount rate or 6-month payment interruption | ☐ | | |
| 7.7 | Balloon payoff risk analysis (if balloon exists: can borrower refinance or pay off balloon at maturity?) | ☐ | | |
| 7.8 | Payment history score (per SFSB-6 Section 5 guidelines) | ☐ | | Score: ______ |
| 7.9 | Scenario analysis: workout, foreclosure, or discounted payoff recovery (downside scenario) | ☐ | | |

**Section 7 Status:** ☐ Complete  ☐ Outstanding items

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## DUE DILIGENCE SUMMARY

**Overall DD Status:** ☐ Satisfactory — recommend proceed to Closing  ☐ Conditional — outstanding items below  ☐ Unsatisfactory — recommend pass or price adjustment

**Outstanding Items (list any items not yet received or resolved):**

1. ____________________
2. ____________________
3. ____________________

**Material Issues Identified:**

____________________________________________________________________________________

**Reviewer Signature:** ________________________________  Date: ____________________

**Reviewer Name / Title:** ____________________

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*This document is published by the Seller Finance Standards Board (SFSB) as a best practice guideline. It does not constitute legal advice. Members and users should consult qualified legal counsel for jurisdiction-specific requirements.*

*© 2026 Seller Finance Standards Board. All rights reserved. Members may reproduce for internal use with attribution.*