Anticipation Note - Explained
What is an Anticipation Note?
Written by Jason Gordon
Updated at October 10th, 2021
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What is an Anticipation Note?
An anticipation note refers to a short-term municipal obligation issued to meet temporary financial needs. It is short-term because it has a duration of less than one year. Funds to pay of the principal of a note in the future are referred to as anticipated". Future long-term, taxes, government grants, principal repayments, bond issues, and other forms of revenue may be used to cover the payment of principal.
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How Does an Anticipation Note Work?
Anticipation note is for meeting the state or cities short-term cash flow to provide means of managing the timing mismatch between its expenses and its revenues. Anticipation notes are of different types, and they include: Revenue anticipation notes (RANs) - It is issued with hope that not-tax revenue like state or federal aid will be the one to service the debt. Tax anticipation notes (TANs) - It is used in the expectation that there will be future collections. Bond anticipation notes (BANs) - These one functions as bridge loans and are given out when the municipality anticipates a future longer-term bond issuance to settle the anticipating note at maturity. Tax and revenue anticipation notes (TRAN) - These are paid off with a mixture of revenue and taxes.