Bond-Anticipation Note (BAN)

Definition

The term bond-anticipation note refers to short-term securities issued by corporations, municipal and state governments; eventually retired using the proceeds from a longer-term bond.  Bond-anticipation notes (BAN) are used to fund the launch of a project.  These notes are then retired using the funds received from a larger bond issue.

Explanation

When a company, municipality, or state government has a near-term need to finance an emergent project, they will oftentimes issue bond-anticipation notes, which can be used to bridge the timing gap between the initial launch of a project and a bond issue that will eventually be used as a source of funding for the project.  Once the longer-term, larger bond issue is in place, the money received from investors will be used to retire the BAN when it matures.

These securities are considered relatively safe investments since the notes usually mature in one year or less.  Bond-anticipation notes are available through municipalities, securities brokers, as well as financial institutions.  A BAN is oftentimes used to kick-start the funding of a large construction project, such as the building of a bridge, highway, stadium or tunnel.  Bond-anticipation notes are one of several options municipal and state governments have at their disposal to fund a short-term need.  Additional sources of funds include revenue-anticipation notes and tax-anticipation notes.

Related Terms

fixed-income securities, variable income securities, primary securities market, secondary securities marketrevenue-anticipation notes, tax-anticipation note, equipment trust certificate, adjustment bond