What is a loan note?
Loan notes are a way for a business to generate seed money to fund particular projects prior to engaging in secured lending. Clients invest money within a Loan Note for a set period of time (usually between one and seven years), during which the ‘noteholders’ receive interest. The arrangement is formalised by a contract, known as a ‘note.’
Companies in the property sector use loan notes to fund either the construction of residential and commercial properties or land acquisitions. For investors, they combine the security of investing in property with higher rates of return than are normally afforded to private clients or individuals pursuing other forms of investment.
Interest is usually payable annually or as compound interest at the end of the loan note period. Bonus payments are often available to those who leave their funds in until the end of the loan note period.
Investors can exit the loan note by providing a notice of withdrawal at least 30 days prior to the investment anniversary or keep their funds in until the end of the agreed period.INVESTMENT CALULATORGET IN TOUCH
An introduction to loan notes by
Farrbury Capital Partners.
To help our investors Farrbury Capital have put together a short video explaining the mechanics of a loan note investment.
What are the different types of loan notes?
There are four main types of loan notes
General purpose loan note
Individuals loan money to a company. The company pays them interest and returns the money at the end of the agreed period.
Equity investor loan note
Individuals loan money to a company, along with equity.
Consideration loan note/
vendor loan note
Individuals can use these to defer liability to capital gains tax arising on share disposal.
Convertible loan note
Individuals loan money, which is then converted into shares as part of a venture capital investment.