Loan Notes

(sometimes called Developer Loan Notes or Construction Loan Notes)
As Banks in the UK have become far less likely to lend to developers and the awareness and benefits of crowdfunding have moved into hyper gear, we're seeing more and more developers want to raise capital through Developer Loan Notes. 

So what is a Loan Note?
A loan note is essentially just an IOU – a piece of paper recording a promise to repay a loan, usually with interest, on specified terms. It is usually more formalised than an IOU and therefore will be easier to prove to a court in terms of a dispute or breech.

A loan note denotes a type of contract that typically outlines the legal obligations of the lender and the borrower. A proper loan note will include a set of contractual penalties, including the right to sue or seek arbitration, if either party to the contract fails to meet or otherwise defaults on financial obligations.

A construction (or Developer) loan note (CLN) is a debt obligation used for the funding of construction projects such as residential housing and commercial developments.

Loan notes may be:
  • Secured or unsecured
  • Listed on a stock exchange, or unlisted
  • Transferable or not transferable
By the way, “bond” and “loan note” often mean the same thing.
EXAMPLE NUMBERS

Here's an example of a product available (Aug 19)

Min Investment: £25,000
Term: Up to 18 Months

Coupon (interest): 10%-12% per annum

Issuer: Award Winning Developer with £26mill profit in 2017.


Definitions

Issuer

Loan Note Instrument

Coupon

Loan Note Certificate

Redemption

Maturity Date

Convertible

Learn about Loan Notes

How do loan notes work in property development?
Your five-minute guide to developer loan notes When a property developer wishes to develop a property – say, for example,[...]
Investing in property vs. investing in loan notes
Key differences and similarities between property and loan note investing Many professional investors are finding that the benefits of investing[...]
Why stock market investors are turning to property developer loan notes
Leave volatility of values and income behind and enhance portfolio returns If you sit down with a financial advisor, you’ll[...]
5 risks when you invest in developer loan notes
How do investors mitigate risks and maximise developer loan note potential? The benefits of investing in developer loan notes include[...]
7 benefits of investing in developer loan notes
Could developer loan notes enhance your portfolio returns?Developer loan notes are becoming increasingly popular with investors. Essentially, this is because[...]

How a Loan Note Works

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.

Call the team on +442079236100 and the team can explain all the benefits, and the risks of this great investment option.
Financial Promotion Disclaimer and Notice
The information provided by this website consists solely of either a) statements of factual information or b) generally accepted investment principles. Nothing posted here should be considered financial advice or an opinion as to the suitability or unsuitability of any investment. Before deciding whether or not to invest in any financial product, readers should either take professional advice from a regulated adviser or ensure they are able to make a fully informed decision themselves. The information on this website does not constitute a financial promotion. 
Before we can discuss any investment opportunities all potential investors in this type of opportunity must certify themselves as either High Net Worth, Sophisticated Investors or Ordinary Investors.

Property Investment... Effortlessly Done For You!

>