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Collateral-Based Income Streams
Overview
The collateral-based income stream category includes cash
flow instruments that are secured by collateral. Collateral
is something of value (e.g., land, a home, a car, etc.) that
is pledged as security to ensure the payment of a debt.
Collateral tends to increase the safety of an income stream,
because if the person who owes the debt stops making
payments, the collateral can be seized. Collateral-based income streams,
then, are secured by a pledge of tangible assets, rather
than just the payor's reputation or past credit history.
Promissory Notes
The majority of collateral-based transactions will
involve the sale of a promissory note. A promissory note is
a document stating a promise to pay a debt over time at a
particular interest rate. Tax liens and tax deeds are
exceptions to the rule. These do not involve the sale of a
promissory note. However, they are classified as
collateral-based instruments because they are secured by
real estate.
The collateral-based
income stream category includes: |
