Note As Collateral

A note can be used as collateral to purchase something else or you can sell the loan at face value or at a discount, or even option a portion of the note to someone else. With the $100,000 note in hand you can borrow against the note to lend again, for a lessor amount but the note is an instrument of collateral. Often times, the investor, the lender has created a note for, will refinance the project with conventional lending after the maturity of the loan to pay off the private lender. Then the private lender can sell the note as a non-performing asset or do a foreclosure, whichever suits the lenders preference for a return on investment.