What is a Promissory Note Sale?

A promissory note sale is an event in which the owner or holder of a promissory note chooses to sell the debt instrument to a new owner. Typically, the sale price for the note is slightly less than the face value, allowing the new owner to earn a modest return when the debt is finally paid in full. The terms and conditions governing the actual sale will impact the potential profit that the buyer will ultimately receive, both in terms of redeeming the face value plus any interest that pay apply to the balance of the note.

Arranging a promissory note sale can be managed in a couple of different ways. One way is for the owner to directly approach financial institutions about purchasing the note for a specific price. Depending on the credit of the debtor involved and the potential for the note to be repaid within a reasonable period of time, the institution may agree to the transaction or possibly counter with a different price. If the two parties can come to terms regarding the promissory note sale, the deal can be completed in a relatively short period of time.

It is also possible to engage the services of a broker to manage the details of a promissory note sale. With this option, the seller has the opportunity to take advantage of the network of investors that the broker represents. Here, allowances must be made for the fees that the broker will charge as part of the process of locating potential buyers and generally orchestrating the deal. One of the main benefits of this approach is that the broker will work within specific guidelines agreed upon with the seller, increasing the chances of securing a price that the seller is willing to accept.

There are several reasons why the note holder may want to arrange a promissory note sale. The need for immediate cash is one of the more common motivations to offer the note to other interested investors. At other times, the holder may wish to arrange the promissory note sale in order to raise capital for use in another investment opportunity that he or she believes has superior potential in terms of earning returns. Whatever the reason, the goal is to sell the asset for enough to make the effort worthwhile, while also pricing the note so that other investors are likely to consider the returns equitable and the deal to carry an acceptable level of risk.