With the stock market plummeting by the minute, you may have a few friends, business associates, or relatives asking more about notes – specifically investing in them.
There is no question investing in notes can be a very lucrative venture. If you have your own money you can receive a great yield. If you don’t have your own capital, you can “broker” the deal to a Funder for a nice referral fee or commission. Private investors however are in a category by themselves.
First off, if you were to sell a note to a private investor (say a family member or friend), you can’t help but feel a bit more obligated that everything goes well. While it may not be a legal obligation, it can certainly stir feelings of personal responsibility. If the payer misses some payments you will no doubt be on the phone on behalf of the note holder trying to work out a deal. Is this really what you signed up for when you thought of tapping into all that “private money?”
If you want to continue on the path of selling to private investors, here are three quick questions to ask yourself.
1. Can you get the same amount (or close) by selling the note to a traditional Funder? If so, sell to the professional corporate Funder versus a private investor.
2. Is the private investor “sophisticated?” In other words, do they already invest in notes and fully realize the risk?
3. Is anyone in the transaction a family member? Avoid family and friends. Really, what is the upside?
With that said, there are plenty of sophisticated private investors out there that purchase notes on a regular basis. Make sure they understand the risks and all documentation goes directly in their name.