Promissory Notes
A promissory note is a form of debt that companies sometimes use, like loans, to raise money. The company, through the notes, promises to return the buyer's funds (principal), and to make fixed interest payments to the buyer in exchange for borrowing the money. Promissory notes have set terms, or repayment periods, ranging from a few months to several years.
Even legitimate promissory notes involve risks — the company issuing them may have problems, such as competition, bad management, or severe market conditions that make it impossible for the company to carry out its promise to pay interest and principal to note buyers. Investors also need to know that bona fide notes are marketed almost exclusively to corporate and other sophisticated investors, who have the expertise and information to determine if the investment is a good one.
Problems with promissory notes fall into three main categories: deception of investors, unregistered securities, and unregistered sellers. Read FINRA's Investor Alert on promissory notes.
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