A loan note is a legal document that indicates a buyer owes a seller money for a purchased item on credit. It details the loan terms, has tangible value, and can be sold or traded. Loan notes are commonly used in business and can be sold to increase liquidity.
A loan note is a legal document that means that one person owes another person money. Loan notes typically exist when a buyer purchases an item on credit. A loan note is written to indicate that the buyer owes the seller money for the item he has purchased.
A loan note usually details the terms of the loan itself. For example, it can indicate how much a buyer has borrowed or the value of assets the borrower is taking and must pay; this is sometimes known as the principal. The note will also state the interest rate charged on the money borrowed and the length of time the borrower must repay the loan.
The loan note has a tangible value. It is legally binding, which means that the person who bought the goods and owes the money is legally bound to pay back the money they owe. Failure to pay the loan amount may result in a legal judgment against the borrower.
Because the loan note has value, it can be sold or traded. This means that the note is transferable. The holder of a loan note may choose to sell the note to obtain immediate cash to expand their business or purchase other assets; If this happens, the debtor still owes you the money, but now owes it to the person to whom the original lender sold the note.
Such notes are commonly used in business. A retail store, for example, may borrow goods and a note may be written dictating how much the retail store must return. When the store sells the inventory, the note is returned with the proceeds. This allows stores to do business without a large amount of excess capital or funds to pay for products before they are sold.
The buying and selling of loan notes is also common. Banks and private companies or investors may participate in the practice of selling loan notes. Selling a loan note allows a company to increase its liquidity by turning debt into an immediate cash asset, and it can also be lucrative for a person who sells the note for more than the full amount the debtor owes. It also allows the purchaser of the note to earn money by being able to collect both the principal and interest payments from the original borrower named in the loan note.
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