Discover the pros and cons of this kind of loan, so you can decide what will work best for your business.
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by Brette Sember, J.D.
Brette is a former attorney and has been a writer and editor for more than 25 years. She is the author of more than 4...
Updated on: December 8, 2023 · 2 min read
An interest-only secured promissory note is a loan that is secured with property and requires interest-only payments through the life of the loan, with a large balloon payment for the principal at the end of the loan term. This type of loan has benefits and drawbacks to consider.
A promissory note is a loan, with one person borrowing money from another and promising to pay it back. A secured promissory note is a loan that has collateral. A piece of property is placed against the loan as security.
An auto loan is a type of secured loan. So is a mortgage. For a loan like this for your business, you might place a piece of business equipment against the note to secure it. If the loan is not repaid, then the lender can seize the collateral.
With most loans, you take out the loan and then the principal and interest are divided up into equal payments throughout the life of the loan. When you make the last payment, the loan is paid off. When the loan is interest-only, you only pay interest throughout the life of the loan. The final payment on the loan is called a balloon payment and equals the entire principal. This amount is due at the end of the loan period.
There are benefits of this type of loan to take into account when deciding if it is the right source of funding for you:
There are drawbacks to this type of loan that you must consider when choosing your financing:
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