Unsecured Notes Procedures

When you have identified an investment that will not be secured by collateral, you will need to follow specific steps and provide the necessary forms and documentation to complete the transaction.

General guidelines

  • The unsecured note documentation must include a principal amount, an interest rate, a maturity date (when payments cease and the note becomes due), and provisions dealing with default and state of governance
  • You will need to name your IRA as the lender ("PENSCO Trust Company Custodian F.B.O. + [Accountholder name], + IRA"). For example, "PENSCO Trust Company F.B.O. Mary J. Investor, IRA"
  • You will need to complete the Unsecured Notes Investment Kit to make this type of investment in your PENSCO account.

Required documentation for an IRA lending to an individual

You will need to provide the following completed, signed forms before PENSCO can begin the process of making an unsecured note investment on behalf of your IRA:

  1. IRA Unsecured Note Authorization

    This form authorizes PENSCO to fund the note from your self-directed account.

  2. PENSCO Note Servicing Agreement

    PENSCO does not service any loans/notes (e.g., handle collections or defaults, etc.). Both the accountholder and the loan servicer (if you are using a third-party loan servicer) must sign the PENSCO Note Servicing Agreement. We cannot accept a third-party loan servicing agreement if PENSCO is the custodian of the note.

  3. Investment funding instructions

    Complete the PENSCO Investment Funding Instructions form in its entirety. Please be aware of our minimum cash balance requirement as well as any associated transactional fees (See your current Fee Schedule). If your account does not have sufficient funds for the transaction, it may cause delays in processing your request.

  4. Original unsecured note

    Original note signed by the borrower is required. Borrower's signature must be notarized.

  5. Payment/amortization schedule

Unsecured note to a business entity

For an unsecured note to a business entity, PENSCO must receive items 1 through 5 above, plus the required documents as outlined in the Private Investment Kit.

Timing for funding the note

Once PENSCO receives the original note (or the copy of the note if you are using a loan servicer), we will fund the note within two business days.

Post-funding

PENSCO Trust Company will hold the note in our vault and accept payments to your account as they are made. All income and expenses must flow directly between the borrower and PENSCO Trust Company as your custodian.