Wednesday, November 26, 2014

Long-Term Notes Payable

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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