In the past few years, the financial world has gone through a rather difficult period when many traditional lenders have found any excuses for not being able to borrow. They usually try to underwrite the A paper contract at the B or C paper interest rate, and if the principle is accepted, they will conduct the transaction. The terms that the lender will provide are usually much lower than the terms it has made in history. This means that the lender will provide a 10% interest rate, and before that they will provide a 6% interest rate, or propose to finance 70% of the purchase, and before then they will finance 90%. You may have heard the news in the news that good stable buyers cannot obtain bank loans for their business, house, car, or things you own. Financial markets are tight. However, people still need cash to buy houses, cars and goods for their business, so they turn to the private market to meet their financial needs. Even at the best of times, 90% of all financing for the sale of small businesses is the funds carried by the seller.
Once these notes or notes are created, the payee (usually the seller) receives monthly payments, including principal and interest, which are the funds they provide to the buyer or payer. Since these note holders are private individuals rather than financial institutions, there are limits on how much capital they can invest in these financial instruments. They usually need to release cash and sell paper money so that they can conduct other transactions or buy other equipment, cars or houses, etc. They need buyers to pay them the cash balance still owed to them or a cash balance close to that balance. As much as possible. Generally, the investment returns required by these buyers in this article are higher than the needs of institutional financial companies.
For example, if the current FNMA mortgage interest rate for the 30-year first mortgage is fixed at 5%, private investors may demand and receive a 10% return on their invested capital. Since the note is created and the terms of the note (interest rate, term, etc.) are set, it cannot be changed. The way for bill investors to get 10% of the 5% of the bill is through discounting. This means that the purchaser of the note will only pay $80,000 for the remaining $100,000. The difference is $20,000 or 20%. This difference is a discount. This 20% is not magical. It fluctuates according to many variables in the transaction, such as: the type of collateral, denomination interest rate, remaining term, whether the owner is using it, payment history, buyer/payer information, etc. Underwriting all these variables or due diligence is the safest and best, which is carried out by professional companies.
thank you for your time,
TJ Stewart, founder and CEO