What this form is for
A promissory note is used when one party lends money to another and needs a legally enforceable written promise of repayment. Small-business owners complete this when borrowing from private lenders, partners, or family members to formalize the debt obligation with specific repayment terms, interest rate, and consequences for non-payment.
Before you start
- Principal loan amount being borrowed and the exact disbursement date
- Annual interest rate agreed upon (fixed or variable) and whether it compounds monthly, quarterly, or annually
- Repayment schedule details: total number of payments, payment frequency (monthly, quarterly), due date of each payment, and final maturity date
- Borrower and lender legal names, addresses, and tax identification numbers (SSN or EIN)
- Collateral description if the note is secured, and whether a separate security agreement exists
Step-by-step
1. Enter the execution date of the note at the top, which is typically the same day funds are disbursed but may differ if signed in advance.
2. Fill in the principal amount in both numerals and written words to prevent disputes. These must match exactly.
3. Identify the borrower (also called "maker") and lender (also called "payee" or "holder") with full legal names and complete addresses. For Ohio entities, include the state of formation.
4. Specify the interest rate and calculation method. Ohio does not cap commercial loan interest rates, but document whether interest accrues daily, monthly, or annually and whether payments apply to interest or principal first.
5. Detail the repayment terms: payment amount, frequency, due dates (such as "first day of each month beginning [date]"), and final maturity date when any remaining balance is due in full.
6. Include prepayment terms if the borrower can pay early without penalty, which is common for small-business notes.
7. Outline default provisions including grace periods, late fees, and acceleration clauses that make the full balance due immediately upon default. Ohio law requires reasonable notice before acceleration.
8. Add any balloon payment clearly if the final payment differs from regular installments.
9. Include governing law (Ohio) and venue provisions specifying which Ohio county court has jurisdiction for disputes.
10. Sign and date with witnesses if required by your lender, though Ohio does not mandate notarization for unsecured promissory notes to be enforceable.
What lenders look for
- Banks reviewing your business finances want to see that private debt has realistic repayment terms that don't overburden cash flow. Ensure your payment schedule aligns with revenue cycles.
- Missing or vague default language is a red flag. Clearly define what constitutes default beyond just missed payments, such as bankruptcy or breach of covenants.
- Avoid handwritten changes or cross-outs. Any modifications after signing should be initialed by both parties or documented in a formal amendment.