What is Included in a Promissory Note?
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