Understanding Cash Flow Notes

Cash flow notes are lawfully binding agreements that document the guarantee of the borrower to repay the lending institution or individual lender. At present, more than sixty kinds of these notes are available. Many of the more typical types are structured settlements, real estate, and business notes.  While cash flow notes are a legitimate investment opportunity, they are fertile ground for scams (second only to perhaps the Forex market) so be sure to exercise caution before getting involved in a cash flow note investment scheme.

Types of Notes

• Structured Settlements – These are financial instruments employed to recompense individuals who were injured because of negligence of an entity, may it be an organization or individual. This kind of cash flow note is covered by annuity payments made available by life insurance companies. Normally, annuity payments are provided to the claimant over an extended term. Depending on the conditions and circumstances, individuals may opt to sell all, or part of their settlement to receive a lump sum cash payment.
• Real Estate Notes – These notes are protected by real property like residential house, commercial building, automobile, mobile home, or airplane. When the property is utilized to secure the notes, a trust or mortgage deed is included. If the borrower defaults on the loan payment, the property can be sold and drawn on to collect on the debt.
• Business Notes – These are more complicated notes and normally require the financial advisor’s assistance.  You may come across with the following types of business notes when looking for investment advice:
• Seller Carry Back Notes – These are utilized when a business owner grants financing to the borrower, also known as owner financing. They are a popular option among small business owners because it is frequently hard to procure loans from traditional lending institutions.
• Purchase Order Funding – In this option, the business owners utilize purchase orders to get the note. This kind of cash flow note is only given when purchase orders are supported by credit-worthy clients. Fundamentally, both the borrower and lender are undergoing equal risk and holding on the fact that the customer will do well on his order.
• Factoring – Through this option, the entrepreneur sells account receivables directly to a funding source recognized as a Factor. It grants business owner with a cash advance or loan against account receivable that are 30 to 90 days due. The Factor lets the borrower incur a small fee and low rate of interest for the entire loan term.