What this form is for
A promissory note is used when your business borrows money and needs to document the exact repayment terms. Lenders require this signed promise showing the loan amount, interest rate, payment schedule, and what happens if you default.
Before you start
- Loan amount you are borrowing and the disbursement date
- Annual interest rate (fixed or variable) and how interest will be calculated (simple or compound)
- Repayment schedule details: monthly payment amount, number of payments, and final maturity date
- Complete legal names and addresses for both borrower and lender, including whether the borrower is an individual or business entity
- Information about collateral or security if this is a secured loan
- The governing state for this agreement, as state law affects enforceability, interest rate limits, and default procedures
Step-by-step
1. Fill in the date the note is being created and the principal loan amount in both numbers and written words. These must match exactly.
2. Identify the borrower (you or your business) with full legal name and address, and the lender with their complete information. If your business is borrowing, use the exact registered business name.
3. Enter the annual interest rate and specify whether it is fixed or variable. Indicate the interest calculation method and when interest begins accruing.
4. Detail the payment terms: amount of each payment, payment frequency (monthly, quarterly), due date of first payment, and total number of payments. Include where payments should be sent.
5. Specify the maturity date when the entire remaining balance becomes due. Make sure this date aligns with your payment schedule.
6. Complete the prepayment section indicating whether you can pay off the loan early without penalty.
7. Fill in default terms including grace periods, late fees, and acceleration clauses that make the full amount due immediately upon default.
8. If the loan is secured, describe the collateral in detail. Reference any separate security agreement by date and parties.
9. Choose your governing state law now. This determines maximum allowable interest rates and collection procedures, so confirm your choice complies with that state's usury laws.
10. Have the appropriate party sign. If your business is borrowing, an authorized officer must sign. Include printed names, titles, and date of signature.
What lenders look for
- Banks verify that payment amounts actually amortize the principal over the stated term at the given interest rate. Use a loan calculator to confirm your numbers match before submitting, as math errors signal carelessness.
- Underwriters red-flag missing or vague default language. Your note must clearly state late fees, cure periods, and acceleration rights, demonstrating you understand the consequences of non-payment.
- Avoid alterations or cross-outs on the final document. Any changes after signing require initials from both parties or the note may be deemed unenforceable.