Note 11: Investor Notes Payable

The table below provides information on the Company’s investor notes payable (dollars in thousands):



		As of				As of
		September 30, 2020				December 31, 2019
SEC Registered Public Offerings	Offering Type	Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate
Class A Offering	Unsecured	$	306	2.12	%	$	487	3.97	%
Class 1 Offering	Unsecured		14,388	3.75	%		22,098	4.01	%
Class 1A Offering	Unsecured		42,780	3.07	%		32,732	3.70	%
Public Offering Total		$	57,474	3.23	%	$	55,317	3.82	%

Private Offerings	Offering Type
Subordinated Notes	Unsecured	$	11,328	4.59	%	$	11,317	5.24	%
Secured Notes	Secured		6,515	3.99	%		6,467	3.98	%
Private Offering Total		$	17,843	4.37	%	$	17,784	4.78	%

Total Investor Notes Payable		$	75,317	3.50	%	$	73,101	4.06	%
Investor Notes Payable Totals by Security	Offering Type
Unsecured Total	Unsecured	$	68,802	3.46	%	$	66,634	4.06	%
Secured Total	Secured	$	6,515	3.99	%	$	6,467	3.98	%

Future maturities for the Company’s investor notes during the twelve-month periods ending September 30,are as follows (dollars in thousands):



2021	$	24,433
2022		17,264
2023		7,847
2024		13,224
2025		12,549
	$	75,317

Debt issuance costs related to the Company’s investor notes payable were $25 thousand and $55 thousand at September 30, 2020 and December 31, 2019, respectively.

The notes are payable to investors who have purchased the securities. Notes pay interest at stated spreads over an index rate. The investor may reinvest the interest or have the interest paid to them at their option. The Company may repurchase all or a portion of notes at any time at its sole discretion. In addition, the Company may allow investors to redeem their notes prior to maturity at its sole discretion.

SEC Registered Public Offerings

Class A Offering.

In April 2008, the Company registered its Class A Notes with the SEC. The Company discontinued the sale of its Class A Note Offering when the offering expired on December 31, 2015. The offering included three categories of notes, including a fixed interest note, a variable interest note, and a flex note that allows borrowers to increase their interest rate once a year with certain limitations. The Class A Notes contained restrictive covenants pertaining to paying dividends, making redemptions, acquiring, purchasing or making certain payments, requiring the maintenance of minimum tangible net worth, limitations on the issuance of additional notes, and incurring of indebtedness. The Company is in compliance with these covenants as of September 30, 2020 and December 31, 2019. The Company issued the Class A Notes under a Trust Indenture entered into between the Company and U.S. Bank National Association (“US Bank”).

Class 1 Offering.

In January 2015, the Company registered its Class 1 Notes with the SEC. The Company discontinued the sale of its Class 1 Note Offering when it expired on December 31, 2017. The offering included two categories of notes, including a fixed interest note and a variable interest note. The Class 1 Notes contain restrictive covenants pertaining to paying dividends, making redemptions, acquiring, purchasing, or making certain payments, requiring the maintenance of minimum tangible net worth, limitations on the issuance of additional notes, and incurring of indebtedness. The Company is in compliance with these covenants as of September 30, 2020 and December 31, 2019. The Company issued The Class 1 Notes under a Trust Indenture between the Company and U.S. Bank.

Class 1A Offering.

In February 2018, the Company launched its Class 1A Notes Offering. Pursuant to a Registration Statement declared effective on February 27, 2018, the Company registered $90 million of its Class 1A Notes in two series – fixed and variable notes. The Class 1A Notes are unsecured. The interest rate paid on the Fixed Series Notes is determined in reference to a Constant Maturity Treasury Index published by the U.S. Department of Treasury (“CMT Index”) in effect on the date that the note is issued plus a rate spread as described in the Company’s Class 1A Prospectus. The variable index in effect on the date the interest rate is set determines the interest rate paid on a Variable Series Note. The CMT Index refers to the Constant Maturity Treasury rates published by the U.S. Department of Treasury for actively traded Treasury securities. The variable index is equal to the 3-month LIBOR rate. The Company issued the Class 1A Notes under a Trust Indenture entered into between the Company and U.S. Bank.

Private Offerings

Series 1 Subordinated Capital Notes (“Subordinated Notes”).

In June 2018, the Company renewed the offer and sale of its Subordinated Notes initially launched in February 2013. The Company offers the notes pursuant to a limited private offering to qualified investors that meet the requirements of Rule 506 of Regulation D. The Company offers the Subordinated Notes with maturity terms from 12 to 60 months at an interest rate fixed on the date of issuance, as determined by the then current seven-day average rate reported by the U.S. Federal Reserve Board for interest rate swaps.

Under the Subordinated Notes offering, the Company is subject to certain covenants, including limitations on restricted payments, limitations on the amount of notes that it can sell, restrictions on mergers and acquisitions, and proper maintenance of books and records. The Company was in compliance with these covenants at September 30, 2020 and December 31, 2019.

Secured Investment Certificates (“Secured Notes”).

In January 2015, the Company began offering Secured Notes under a private placement memorandum pursuant to the requirements of Rule 506 of Regulation D. Under this offering, the Company is authorized to offer up to $80.0 million in Secured Notes to qualified investors. On December 31, 2017, the Company terminated its 2015 Secured Note offering.

The Company secures these notes by pledging either cash or loans receivable as collateral. The collateralization ratio is 100% on the pledged cash and 105% on the pledged loans receivable. Said another way, every dollar of cash collateralizes one dollar of secured notes and every $1.05 of loans receivable collateralizes one dollar of secured notes. At September 30, 2020 and December 31, 2019, the loans receivable collateral securing the Secured Notes had an outstanding balance of $9,127 thousand and $13,019 thousand, respectively. The September 30, 2020 and December 31, 2019 collateral balance was sufficient to satisfy the minimum collateral requirement of the Secured Notes offering. As of September 30, 2020 and December 31, 2019, the Company did not have cash pledged for the benefit of the Secured Notes.

Effective as of April 30, 2018, the Company launched a new $80 million secured note offering. The Company issued the 2018 Secured Note offering pursuant to a Loan and Security Agreement. This agreement includes the same terms and conditions previously set forth in its 2015 Secured Note offering. The 2018 Secured Note offering terminated on April 30, 2020.