Promissory notes are issued for a number of different situations. They represent a promise by one party to pay another party a specific amount of money at a future date. Guidelines surrounding the instrument can be vague when it comes to the legalities of an issuance. There are a few ways to confirm if a promissory note is quite literally worth the paper it is written on.

Parties to a Promissory Note

A promissory note is similar to many other business contracts. The issuer, or the borrower, is promising to pay a predetermined amount under specific terms. The holder of the promissory note, also called the payee, agrees to the undersigned terms and conditions of the note.

Both parties are held to the specifications of the agreement. This may include the payment amount, repayment time period, interest rate, and stipulations for nonpayment. Some details, such as the payment date and acceptable methods of payment, may be negotiable and subject to change. Other factors, such as required security instruments and default conditions, are firmly built into the conditions of a promissory note.

Intrinsic Value of a Promissory Note

Similar to other debt instruments, promissory notes offer a level of inherent value. Depending on whether the contract is secured or not, the owner may be able to leverage the value of a promissory note. Sole proprietorships, small businesses, and large corporations all have the capacity to carry line items in their financial records that reference promissory notes.

Simply holding the rights to a debt instrument does not guarantee a steady stream of income. Users are entitled to the funds, but may have to resort to collection activity in order to recoup missed payments. The true valuation of a promissory encompasses both obvious and unseen dynamics. In order to truly understand the full scope of benefits and consequences of a promissory note obligation, a valuation must be performed.

Comprehensive Valuation Processes

Certified valuation experts have the innate ability to analyze promissory notes based on valuation criteria. A comprehensive appraisal process considers a multi-pronged approach to valuing promissory notes. High-net-worth families are often faced with settling an estate that includes one or more promissory notes. Corporations also typically manage a myriad of debt instruments. 

Appraisal Economics has decades of experience valuing a wide range of debt securities from simple promissory notes to exotic instruments with complex terms. We have valued unsecured promissory notes due from individuals, illiquid auction rate municipal securities held by publicly traded companies, and credit facilities with complex embedded derivatives. After a thorough analysis, we will provide a complete USPAP compliant appraisal report that clearly details credit risk, intrinsic value, and potential future gain or loss. Please contact us if we can be of assistance.