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A loan note is a debt instrument in which the purchaser loans money to an entity (typically corporate or governmental) which borrows the funds for a defined period of time at a variable or fixed interest rate. Loan notes are used by companies to raise money and finance a variety of projects and activities. Owners of loan notes are debtholders or creditors, of the issuer. Loan notes are commonly referred to as income-producing debt instruments, some of which are secured whereas some are unsecured. Bonds, corporate bonds, loan notes, or corporate loan notes, are all essentially the same. Loan notes and bonds are different from purchasing shares/equity, as shares/equity do not offer any security and, usually, no defined return OR exit.
A debt instrument is a collective phrase which we are using to describe Bonds, or mini-Bonds, Loan Notes, Debentures or any other form of securitisation of a loan to a company. The debt instrument reflects the loan from the holder of the instrument to an entity (typically corporate) which borrows the funds for a defined period of time at a variable or fixed interest rate. Debt Instruments are used by companies to borrow money and finance a variety of projects and activities. Owners of the debt instruments are debtholders or creditors, of the issuer. Debt Instruments are commonly referred to as income-producing debt instruments, and some are secured whereas some are unsecured. Debt Instruments are different from purchasing shares/equity, as shares/equity do not offer any security and, usually, no defined return.
Why Do Companies Issue Debt Instruments Rather Than Borrowing from a Bank?
When companies or other entities need to borrow money to finance new projects or to maintain ongoing operations, they may issue debt instruments directly to lenders instead of obtaining loans from a bank. Most companies can borrow from banks but view direct borrowing from a bank as more restrictive, less flexible, and often more expensive than issuing debt instruments. With bank lending not being as freely available since the 2008 crash, more and more businesses are turning to debt issuance as a financing alternative.
You should note however the products we introduce are not investments and are not covered by the Financial Ombudsman Services (FOS) or by the Financial Services Compensation Scheme (FSCS). The products being introduced are illiquid as they are unlisted and therefore cannot, in the normal course of events, be sold and must be held to maturity. The issuer may treat requests from debt holders for early repayment sympathetically but are under no obligation to do so. The issuers of the debt instruments are generally small businesses in start-up or expansion phases and as such are more likely to fail than established debt issuers. You may therefore lose some (or in extreme circumstances all) of the funds you lend and therefore should not be lending funds which you are relying upon or which, the loss of, would impact your financial well-being.