Borrower's note loans are long-term, large-scale loans that are similar to bonds. For example, large companies might take out borrower’s note loans with insurance companies and other institutional investors.

The following graphic gives you an overview of the basic procedure for borrower’s note loans.

In Loans Management, you can display borrower’s note loans given against receipt of the borrower’s note (purchase). You can also display their assignment or resale of part of the amount or of the whole amount (sale). Issues of borrower's note loans are not supported. You can, however, map borrower's note loans taken within the product category general loans.

You can manage borrower’s note loans as loan contracts in Loans Management with or without postings to customer accounts. Alternatively, you can use order management in the Loans component to process borrower’s note loans without postings to customer accounts.

If you use order management, you can process both purchases and sales for borrower’s notes. It is therefore advisable to use this option for traded borrower’s notes.

If you do not use order management, you must use the disbursement function to enter purchases and the manual posting function to enter sales.

Advantages of order management:

• You can use the payment request function for purchases
• The system calculates the deferral amounts for the premium/discount automatically for sales
• Simplified handling (such as fast entry for master data)
• You can define preemption conditions

If, by contrast, you use the disbursement function, you can manage borrower’s note loans using customer accounts. The following customer-based functions are available:

• Payment program
• Manual and automatic incoming payments
• Incoming payment postprocessing
• Dunning program
• Calculation of interest on arrears

To use order management, set order management for borrower’s note loans to active in Customizing by choosing Define Product Types.

If order management is set to active, you can enter reservations, orders and contracts. You can also use the collective processing functions to perform follow-up activities for the order.

You define whether borrower’s note loans are managed on the basis of customer accounts or without customer accounts in Customizing (IMG step: Company Code-Dependent Settings for Product Type).

In order management, the data for non-customer-based borrower’s note loans is transferred to Financial Accounting when you post the order. There is no automatic link to the payment program used in Financial Accounting (FI). However, you can use the payment request function to generate a payment document for a borrower’s note purchase or sale.

Order management allows you to Create, Change, Display and Activate reservations, Change, Display and Delete/Reverse orders, and use the Collective processing function.

You can purchase borrower’s note loans directly from the issuer (original) or indirectly from a counterparty (derivative). When you create an order, you assign the role of issuer or counterparty to your business partner accordingly. You must assign an issuer to each borrower’s note.