Finance is integral to business, as many Manchester United supporters will know. Many will even be experts on balance sheets and profit and loss accounts. So the “financial playbook” theme for The Busby Babe of the last week is definitely one the Manchester United Stats community can get behind.
One such important distinction for club members and supporters relates to financial agreements they may enter into. Particularly in relation to being a member of the club itself, or an investment relative to the following:
In this article we take a look at the different obligations involved in two of the most common financial documents that are used in the business world: a difference between loan agreement and promissory note.
What is a loan agreement? A loan agreement is a written contract between a lender and a borrower, where the lender agrees to provide a stipulated amount of credit, usually with interest, for a specified period of time.
Under a loan agreement, it is often common for the recipient to be provided collateral, in the event they cannot pay the amount owed back in the future. The loan agreement will list the required repayment/interest specified, and the collateral involved.
What is a promissory note? This is a written contract between a lender and borrower, under which the borrower makes a promise to pay back a specified amount (plus interest where applicable).
It can be either secured (a loan; or) or unsecured (similar to a credit card, for example). A promissory note does not have to be in written form, and can take the form of a cheque, for example. These are common when dealing with businesses.
Discerning the similarities Both of these contracts allow a specified amount of credit, where the borrower can then pay back this credit with interest. If the loan was not paid back, there would be recourse to relevant assets/securities.
In a typical promissory note, the borrower promises to repay a certain percentage of the principle amount, within a certain number of days, plus interest. These types of notes are usually offered with no interest rate.
What are the obligations involved? When it comes to either of these financial documents, both parties owe numerous legal obligations. Under a loan agreement is a requirement that, if the borrower defaults on the amount owed, the lender then has the right to seize the collateral. If the debt cannot be collected through other means, the lender can then take legal action.
When it comes to a promissory note, the legal obligations involved as a borrower is to pay the lender, the stipulated amount, at the agreed time of payment. In other words, this is a requirement to pay back the debt.
Examples of use The use of either of these financial instruments is not uncommon within the Manchester United community: Ultimately, understanding the difference between a loan agreement and a promissory note can be quite useful, particularly if you are thinking of entering into one of these agreements with the football club. Beyond investing in the club, there are many contexts in which understanding the nuances of each is quite beneficial.
Risks versus rewards As is the case with any type of financial agreement, there are pros and cons involved. For example, if you decide to enter into a loan with the club, you could earn some interest on that amount. But, you could also lose your money if the club struggles financially.
In terms of a promissory note, you would not earn any interest on your investment. The only reward here is simply the satisfaction of helping the club out. Promissory notes are typically issued by the purchaser to the seller. They have a value and are regarded as negotiable instruments.
Scenarios As a member of the Manchester United community, you might enter into a loan agreement in the following context: By knowing the difference between a loan agreement and a promissory note, you can make informed choices, and participate fully in a financial agreement involving the club.
Conclusion – become an educated member of the BMUSC community Using the loan agreement versus the promissory note, as a framework for analysis, you can see how important finance is to the football club.
When it comes to being a part of the Manchester United “brand” you have a lot of financial options to consider. It’s a good idea to explore these options, educating yourself about the requirements, various obligations, loans, or notes you could take out.
By empowering yourself financially, you are guaranteeing your own future as it pertains to the club. For more information on financial agreements, you can visit Consumer Financial Protection Bureau.