When considering how to pay off debt or raise money for a large expenditure, most Americans think of those approaches with which they are most familiar. These can include cutting back on discretionary expenses, taking a second job, cashing out certain investments, etc. These are known and useful ways to make your money last longer.
Generally, people are not aware that they can cash in future income streams (payments that will arrive in the future) today. The future income streams might be from a mortgage note, a lawsuit settlement, lottery winnings, or any number of other ways. The bottom line is that you be receiving regular payments on something and would prefer to get a lump sum of cash now. Let’s consider two examples – one for individuals holding a real estate note and another for owners of a small or medium size business that want to increase cash flow via factoring.
What is a Mortgage Note?
A mortgage note (also called a real estate note or deed of trust note) is created when a property is sold using owner financing. For instance, if you sold your house or a piece of land to Ms. Smith, she might give you a down payment and agree to make set monthly payments to you over a prescribed number of years and at a certain interest rate. You would then be “carrying the note.” If you are comfortable receiving those monthly payments and the payer send in her checks on time each month, then everyone is happy.
However, let’s say that you want to pay off some high-interest credit card debt or have a unique opportunity on an incredible investment. You could choose a mortgage buyer, who would help you to sell of your note or to just sell some of the payments. You would receive a lump sum of cash, while the note buyer would begin receiving those regular note payments.
Factoring
If you own a business, your dream is to grow it to a point where you reach your financial goals and feel rewarded by your work. The challenge is that some of your customers take their own sweet time to pay your invoices, while you need cash to meet payroll or buy more inventory. Invoice factoring is ideally suited to meet this type of short-term cash flow need. Once you are set up with a factoring company, you are given money as you send out invoices to your clients. If you’re billing out $100,000 per month, then the factoring company would give you $70,000 – $80,000 within 48 hours of you mailing out your invoices. When your customers pay off your invoices, you receive the remainder, minus whatever factoring fee was previously agreed upon. Invoice factoring can be used for just a couple of months or extended out for many years. It is quicker and more flexible than a bank loan.
Selling a note or factoring your accounts receivable are just two ways of getting cash quickly, though there are many other examples. It is well worth your time to be aware of these alternatives and to gain knowledge of how they can help you.
Alan Noblitt is the owner of Seascape Capital Inc., which buys real estate notes from individuals and provides commercial invoice factoring and medical factoring to businesses. If you would like to learn more about these topics and read informational articles, visit www.seascapecapital.com .
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