What is a reasonable discount fee for the sale of receivables with these terms?

[Nicholas Tortarolo]

Suppose I have $1,000,000 loaned to a dentist to finance his medical equipment (decent credit background). The payments are due monthly over 5 years (60 months). The monthly payment is $21,247.04 for the life of the loan. The present value of the profit is $125,895.66 so the total paid at maturity is $1,125,895.66.

If I would like to sell this stream of payments to a bank, what discount fee do you think they would charge at 60 months? At 48 months? At 36 months?

Please give any insight you may have.

[Jon Holdman]

You say the "present value of the profit is $125,895.66 so the total paid at maturity is $1,125,895.66".  That's not the "present value".  That is the total interest received from all payments on the loan if its held to maturity.  But the present value of this note is, at most, the current outstanding balance on the loan.  As you realize from your question, most potential buyers would be put the present value of the loan even lower.  The present value is what a buyer would pay.

Banks don't buy such notes.  Some note buyers do.  Most folks here who do buy notes buy ones that are secured by real estate.  The value a note buyer, such as @Marc Faulkner or @Dion DePaoli  might pay is going to be determined by a number of factors:

• interest rate (I get 10% for your loan)
• credit worthiness of borrower
• seasoning
• value of collateral

Collateral is the kicker here.   With real estate its pretty easy to put a value on the property, so that limits your downside if the borrower defaults.  For dental equipment I'd guess its like a lot of chattel.  The price it would bring at auction is a small fraction of the new price.   So, the collateral doesn't really give the lender much protection.  So it may come down to the ability of the lender to collect from the dentist if the business fails.