A Promissory Note is an unconditional written promise to pay a specified sum of money on demand or at a specified date. It is used to record a loan and may be used in lending transactions ranging from $1,000 to $15,000.
Unless the lender is a bank with its own form of loan agreement, a good Promissory Note is often sufficient to evidence a loan or borrowing. Promissory Notes do not have to be notarized to be legally valid in most states.
Promissory Notes usually contain the following key points:
The date of the note
The borrower's name
The lender's name
The address where payments are to be sent
The amount of the debt
Whether the note is payable on demand or at a definite time
Description of the collateral
The interest rate
The due dates for payment of interest and principal
Whether the note can be prepaid
Any late charges
An attorneys' fees clause
The borrower's proper signature
If your company will be loaning money to a third party, you may be wondering what you should include in the promissory note.
A promissory note is intended to be a legal contract obligating the borrower to pay back a loan. The key terms of promissory notes are:
The amount of the loan
The amount of the interest rate
When interest and principal are payable
Where payments are to be sent
The late fee if payment is not made on time
Whether the note is secured by any assets of the borrower
Whether the note is guaranteed by another person or entity
That the maturity date of the loan can be accelerated if the borrower has not made timely payments or otherwise breached the terms of the note
That the borrower is liable for attorneys' fees and costs if you have to sue to recover under the note
What law governs and where legal actions can be started if the borrower defaults
