IOUs For Business Owners: Business Promissory Notes

A promissory note is one of the most useful, most efficient types of debt instruments that are used by many people and companies today. These are financial contract agreements between two entities when a loan is being made. A promissory note acts like a formal IOU, and binds the borrower and the lender into a certain agreement, with the proper terms and conditions. This financial tool is said to be very helpful since it legitimizes transactions and clears up all the aspects of the loan.

There are many different types of promissory notes. There are land contract and real estate promissory notes, and there are also mobile home promissory notes. There are promissory notes offered by students to their schools when they cannot afford their tuition. Promissory notes vary according to their value, their market and where they are used.

Another popular type of promissory note used today is the business promissory note. Business promissory notes are secured by a specific business as well as its assets. This type of note usually stems when the business' owner is planning to sell the business through seller financing. This type of trade, also referred to sometimes as owner financing, is when the seller loans money to the buyer to buy and close on the business. This can happen when the owner has an urgent need for money (such as for expansion), or if he or she suddenly decides to shift to another type of industry or business venture. Usually business promissory notes come with a part cash payment. In case the buyer defaults, the business and the assets secure the business so that it will not become bankrupt.

Just like other types of promissory notes, business promissory notes can also be sold and bought by eager promissory note buyers. However, not many buyers wish to purchase this type of promissory note, since they are said to be much riskier assets than other types of notes.