What this form is for
A promissory note is a legally binding written promise from a borrower to repay a specific sum of money to a lender on defined terms. Small-business owners use this when borrowing from banks, private lenders, partners, or investors to formalize the repayment schedule, interest rate, and consequences of non-payment.
Before you start
- The exact loan amount (principal) you are borrowing
- The annual interest rate agreed upon with your lender
- Your chosen repayment schedule: monthly, quarterly, balloon payment at maturity, or other arrangement
- The maturity date when the loan must be fully repaid
- Details of any collateral securing the loan, if applicable
- Your business legal name, address, and EIN or your personal SSN if you are signing individually
- Lender's full legal name and address
Step-by-step
1. Fill in the date you are signing the note and the city and state where you are executing it (must be accurate for New York jurisdictional purposes).
2. Enter the principal amount in both numerals and written words to prevent alteration or ambiguity.
3. Identify the borrower by full legal name. If your business entity is borrowing, use the exact registered name. If you are personally guaranteeing or borrowing, use your individual name.
4. Identify the lender (payee) with their complete legal name and mailing address.
5. Specify the interest rate as an annual percentage. In New York, verify your rate does not exceed usury limits (currently 16 percent for most commercial loans, but confirm with your attorney).
6. Detail the payment terms: amount of each installment, due date of first payment, frequency (monthly is standard), and final maturity date. If you have a balloon structure, clearly note the large final payment.
7. Complete the late-charge clause, specifying the grace period (typically 10-15 days) and the late fee, often expressed as a percentage of the overdue payment.
8. Address prepayment rights: state whether you can pay off the loan early without penalty.
9. Define events of default beyond missed payments, such as bankruptcy filing or breach of related agreements.
10. Sign and date in the presence of a notary if your lender requires notarization. The borrower signs; the lender does not typically sign a promissory note.
What lenders look for
- Banks scrutinize consistency between the promissory note and the loan agreement or term sheet. Mismatched interest rates, amounts, or maturity dates raise red flags and delay closing.
- Underwriters verify that repayment terms align with your projected cash flow from your business plan. Unrealistic monthly payments relative to revenue signal risk.
- Missing or vague default provisions weaken enforceability. New York courts enforce clear, specific language, so avoid leaving blank spaces or using ambiguous terms like "reasonable time."