A loan note, a form of promissory agreement, includes all of the associated loan terms. It is considered a legally binding agreement, with both parties considered committed to the terms as they are written.A loan note can be drawn up by either borrower or lender, though it is more traditionally completed by the lender. The note is considered valid until the amount listed on the document is paid in full by the borrower.
Information Contained in a Loan Note
The loan note contains all of the pertinent details regarding the legal agreement reached by the involved parties. This includes the names and contact information for both parties, as well as the principal balance and any interest rate being applied over the term of the loan. Additional information regarding the payment schedule, including the due date, will be included.
Penalty information may also be included. This can include repercussions for late payments or information pertaining to prepayment penalties.
Example of Loan Note
Loan notes are used mostly for instalment debts in which the borrower is making a purchase of a particular good or service and paying the amount back over time. A common consumer need for a loan note is a home purchase, which includes a loan note along with the mortgage or deed of trust. Loan notes are also used for vehicle financing and most other forms of instalment loans.
Special Considerations for Loan Notes
Legally, a loan note holds more significance than an informal IOU, even when the informal IOU is notarized. Generally, a loan note will be upheld unless either party can prove the agreement was entered into while under duress, which may make the conditions within the document void, rendering them unenforceable. Although given the steps that we would take in preparing a loan note this is highly unlikely to be the case and the loan note would be upheld.
Loan notes are commonly used for raising funds for a wide range of purposes, including institutional investments, securitisations, property development projects, public companies, owner-managed businesses and start-ups. They are also commonly used for restructuring existing businesses. They are extremely scaleable, and in theory there is no limit to the total amount that can be raised, or the number of note holders. Although when assessing the risk a lender would consider the current position of the business, and it’s debt including existing loan notes, before making a decision to invest.
The regulatory and tax status of loan notes depends very much on the circumstances involved. Detailed rules govern who loan notes can be offered to, what information must be supplied, and who can be involved in promoting them, advising on them or arranging investments in them. These rules also dictate what kind of financial services professionals need to be involved in the offering of loan notes or the operation of structures involving loan notes.
If you’re interested in looking at the various companies that assist in fund raising for their loan notes when you will need to complete a declaration form and that will allow us to chat with you about specific products available or refer you to a company that can.
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and the team can explain all the benefits, and the risks of this great investment option.
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