Loan Note


DEFINITION of 'Loan Note'

An extended form of an IOU from one party to another that enables a payee to receive payments (possibly with interest) over a set period of time, ending with the date at which the entire loan is to be repaid.

Loan notes are usually provided in lieu of cash at the payee's request.


A loan note can help an individual investor avoid an undue tax hit resulting from a lump sum payment from a settlement or cash-out package from a company. In these cases, the individual is given a choice between cash or a loan note.

When loan notes are used between businesses, the purchaser is able to act as a borrower and make payments over time, often at a minimal or "at cost" interest rate.

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