What Is A Loan Note?
A loan note is a legal contract in the UK. It specifies the duration of a loan and any agreed interest. A loan note is usually issued by companies in order to raise capital.
Loan notes can come in different forms such as
- Secured loan notes
- Unsecured loan notes
- Transferable loan notes
- Loan notes that can be traded on a stock market
A loan note always has an issuer and a subscriber. The issuer is the company that has issued the loan note, and the subscriber is the person who has given money to the company in exchange for the loan note, usually in order to receive interest when the money is paid back.
There will always be a loan note instrument, which is the document laying out the terms and conditions of the loan note, and also a loan note certificate, which is the official certificate of ownership signed by the issuer and the note holder, and there will usually be a set maturity date for the loan.
Loan notes are an extremely popular investment as they offer much higher rates of interest than any other ethical investments, and they provide a high level of security. Especially as the returns from more traditional areas of investment have diminished in recent years. They are also mutually beneficial for both parties involved as the investor makes a tidy profit, while the issuer receives funds which enable it to grow and develop their business. Also, a UK loan note that is considered a normal commercial loan is capital gains tax exempt.
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