What is a loan note?
A loan note is a legally binding agreement which evidences the existence of a debt between the lender (the noteholder) and the borrower (the loan note issuer). It defines the loan amount, repayment terms and applicable dates.
How is a loan note different from a listed corporate bond or a government bond?
Loan notes are effectively a private borrowing agreement between a company and an investor. Unlike bonds, they cannot be transferred to someone else.
Are loan notes protected by the Financial Services Compensation Scheme?
No, loan notes are not protected by the Financial Services Compensation Scheme. While safeguards are in place, the FCA is very clear that every investor should be aware that their capital is at risk.
How is the loan note investment secured?
The loan note is secured by way of a debenture (a form of security in favour of the lender) and a corporate guarantee, with a security trustee in place. The debenture attaches to all current and future assets of the company and is not restricted to land alone.
Who can invest in loan notes?
Anyone who is over the age of 18 can invest in loan notes. As well as individual investors, trusts, companies, charities (subject to their governing documents) and the retail sector can hold loan notes.
Investors must fall within one of the following categories:
(i) certified high net worth investors (as per COBS 4.7.9R);
(ii) certified sophisticated investors (as per COBS 4.7.9R);
(iii) self-certified sophisticated investors (as per COBS
(iv) certified restricted investors (as per COBS 4.7.10R)
Company investments and joint applications are also welcome. We recommend all investors speak to an advisor who is authorised under the Financial Services and Markets Act 2000 and specialises in investments of this kind.
Can the loan note issuer prematurely redeem the loan note?
Yes. The loan note can be redeemed annually, providing the investor has given 30 days’ notice.
When does the investor get their original investment back?
The original investment should be returned in full at the maturity of the loan note or on the anniversary of the investment, subject to the investor providing no fewer than 30 days’ notice prior to the anniversary date.
What happens to the money if it isn’t immediately deployed as planned?
If the money is not instantly deployed, it will be held for a short period of time in the company accounts. However, this is not the intention and all funds should be deployed instantly.
What will the loan note be used for?
Loan notes issued through Farrbury Capital Partners will be used to provide seed capital and development funding for a range of residential property developments.
Can investors monitor what the money is being spent on?
Yes. Investors will receive monthly updates on all ongoing and potential projects, as well as annual statements on the performance of their investment.
Can I include loan notes as part of the SSAS?
Yes. Loan notes can be included as part of the SSAS, at the discretion of the SSAS provider. However, not all SSAS providers will accept loan notes.
Can I change my mind?
Yes. You have 14 days to change your mind after signing your application. After that, the application is irrevocable.
When is interest calculated from?
Interest is calculated from the date that the loan note issuer receives the funds and issues the investment certificate.
Can I sell my loan note or give it to someone else?
No. The loan notes are non-transferrable.
If I die, what happens to my loan note investment?
In such a situation, the sums due would become part of the noteholder’s estate. They will be paid out on the next 12-month anniversary of the loan note, subject to receipt of a valid death certificate and deed of probate.
Should I discuss the loan note investment opportunity with a financial adviser?
Yes. We recommend that all investors speak to an adviser who is authorised under the Financial Services and Markets Act 2000 and specialises in investments of this kind.