what is an unsecured note 
an unsecured note is a loan that is not secured by the issuer s assets unsecured notes are similar to debentures but offer a higher rate of return unsecured notes provide less security than a debenture such notes are also often uninsured and subordinated the note is structured for a fixed period understanding unsecured notecompanies sell unsecured notes through private offerings to generate money for corporate initiatives such as share repurchases and acquisitions an unsecured note is not backed by any collateral and thus presents more risk to lenders due to the higher risk involved these notes interest rates are higher than with secured notes in contrast a secured note is a loan backed by the borrower s assets such as a mortgage or auto loan if the borrower defaults these assets will go towards the repayment of the note for this reason collateral assets must be worth at least as much as the note additional examples of collateral that can be pledged include stocks bonds jewelry and artwork unsecured note and credit ratingcredit rating agencies will often rate debt issuers for example in the case of fitch this agency will offer a letter based credit rating that reflects the chances that the issuer will default based on internal i e the stability of cash flows and external market based factors unsecured debt holders are second to secured debt holders in the event of needing to claim assets in the wake of a company s liquidation special considerationsliquidation occurs when a company is insolvent and cannot pay its obligations when they come due as company operations come to an end its remaining assets go towards paying creditors and shareholders who purchased stakes and or made loans as the company expanded each of these parties has a priority in the order of claims to company assets the most senior claims belong to secured creditors followed by unsecured creditors including bondholders the government if the company owes taxes and employees if the company owes them unpaid wages or other obligations finally shareholders receive any remaining assets beginning with those holding preferred stock followed by holders of common stock 