There are many kinds of cash flow notes used in todays financial transactions; between businesses and private entities alike. They are defined as contracts that put in writing the agreement of the party borrowing to pay back the lender. While more than sixty types of cash flow notes exist today, there are three that are used more than the others: business, structured settlements, and real estate.
Business notes are protected by the business assets so its important that the issuing business not issue notes that exceed the value of said assets. This kind of cash flow note very often requires a financial advisor to help with it due to its complexity and use of legalese so if this is something you are entering into, please have your financial advisor with you at all steps of the process. The business cash flow note is, in point of fact, only descriptive of three sub-types: Factoring, Purchase Order Funding and Seller Carry Back Notes. These are pretty easy to tell apart as their titles pretty much describe their function.
Factoring has the business selling assets to a Factor (basically, a source of funding) with that Factor providing the business with an advance against those assets that are usually due within one to three months. In contrast, Seller Carry Back Notes are used when a business owner provides financing to the borrower. Small businesses will often opt for this as conventional lenders tend to not finance them as easily. The third kind of business note, Purchase Order Funding, has the business owner using purchase orders (POs) to lock up the cash flow note. The thing is, only prospective borrowers who are credit-worthy may use this kind of note so it may not be as easy to procure.
Real Estate cash flow notes are much more simplistic in nature. They are unique as they are backed by the value of the borrowers property (their house for example). If the borrower defaults on the loan however, the property used in the agreement can be sold for collecting the debt.
The third kind of cash flow note, the Structured Settlement, is used to pay damages to people who have been injured due to someone elses fault (usually hurt on the job because of their employers negligence). This type of cash flow note is secured using the payments provided by the issuing insurance company. More often than not, annuity payments are paid to the recipient over an extended period of time although the recipients of the settlement can sometimes sell their settlement to a company (you may have seen the J.G. Wentworth commercials on television) for a lump sum although there are restrictions on such sales so consult the laws in your state for more information.
Savvy investors often purchase cash flow notes as they can be treated like any other asset and as such, can be traded in financial markets. If the investor is smart about which notes they purchase, its possible to make quite a lucrative living from trading cash flow notes.