Promissory Notes Overview

A promissory note is an extension of credit from one or more individuals or entities to another individual(s) or entities. An IRA is able to extend credit to any party (including corporations) as long as the party is not considered a "disqualified person".

There are two categories of promissory notes: secured and unsecured.

Secured notes

The most common example of a secured loan is a mortgage on a home. Mortgages, trust deeds, and deeds of trust are essentially the same thing. In some states a mortgage is called "trust deed" or "deed of trust." Secured notes are backed by collateral which means that in the event the borrower defaults on the loan from the lender (in this case the IRA is the lender) the borrower agrees to supply the lender with the "collateral" or "security" in lieu of the principal balance of the loan.

Unsecured notes

An unsecured note is an extension of credit or a promise to pay one or more borrowers. Unlike a secured note, there is no collateral supporting the debt obligation in the event of default by the borrower. The lack of collateral generally makes these unsecured notes riskier than secured notes.

Next steps

If you have a PENSCO account and are ready to invest in a note, follow the instructions for the type of note you wish to invest in:

If you're not yet a client, start by opening an account.