Promissory notes can provide lucrative returns, if you know what you are doing. There are scores of notes to choose from. Business notes are one option. These notes are secured by the business itself. In this case, the collateral includes any equipment and inventory that is part of the company; however, it does not include the real estate property on which the business stands. Your return depends upon the profitability of the actual business.
The note requires the individual who owns the business to make specific payments for a given amount of time. The borrower (also known as the owner) normally provides the seller (financer) with a cash deposit and makes payments to the seller that are fixed – the amount, the schedule, and the term length.
The schedules are not limited to monthly payments. Payment might be made quarterly, annually, or as a balloon payment. If the borrower defaults on their loan – the business note – the owner of the note can go after the business and its possessions.
When you decide to make an investment in business notes, there are some things to consider. First, you have to identify the notes that will make strong investments. Because there are many kinds of buying options, it’s best to have a seasoned broker by your side to walk you through the process. Ultimately, the option you choose will depend upon your financial objectives and your stomach for risk.
While it is true that investing in business notes is riskier than purchasing other types of notes, there are means by which to limit your risk. The obvious way is to conduct your due diligence thoroughly. If you have conducted a complete assessment of the business in question and the details of its note, the investment can potentially provide and healthy return.