Long-Term Note Payable is similar to a bank loan, but has
two notable differences. First, it has a very specific objective: to finance
the purchase of an expensive item (that serves as the collateral) – production,
warehousing, IT or other equipment; automobile, aircraft, etc. Second, this
purchase is usually financed by the seller, not the bank.
Therefore, there are two major issues in analyzing your
notes payable. First, it is an investment
project and must be analyzed as such to make sure that it makes both
financial and economic sense (i.e., that its NPV, IRR and other KPI are
acceptable).
Which will require a solid financial model for this project
supported by a no less solid operational plan with comprehensive comments and
explanations (a business plan) and all relevant corporate information. And a competent and experienced project
manager – to make your project a success.
The second issue is that you always have a choice of your
lender. You can obtain financing from the seller or from the bank. Obviously,
you must choose the better one from financial value perspective.
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