What this form is for
A promissory note is used when your business borrows money and needs to formalize the repayment terms. This legally binding document specifies the principal amount, interest rate, payment schedule, maturity date, and consequences of default, and it serves as proof of debt for both lender and borrower.
Before you start
- Loan amount (principal) and the exact date funds will be or were disbursed
- Annual interest rate you've negotiated, and whether it's fixed or variable
- Repayment schedule details: monthly payment amount, due date each month, and final maturity date
- Borrower and lender full legal names, addresses, and tax identification numbers
- Collateral description if the note is secured, and details of any personal guarantees
Step-by-step
1. Fill in the date of the note and the principal loan amount in both numerals and written words to prevent disputes.
2. Identify the borrower (your business legal name) and lender with complete addresses. If your business is an LLC or corporation, confirm you're using the exact registered name.
3. Specify the interest rate and clarify whether it's simple or compounded interest. Pennsylvania law allows parties to set their own rate, but confirm it doesn't exceed any applicable usury limits for commercial loans.
4. Detail the payment terms: amount of each installment, due date (e.g., first day of each month), where payments should be sent, and the final maturity date when the entire balance is due.
5. Include the late fee or penalty structure if a payment is missed, and define how many days past due triggers default.
6. Describe prepayment rights—whether you can pay off the loan early without penalty, which is advantageous for your business.
7. State the governing law as Pennsylvania and specify which county's courts have jurisdiction in case of disputes.
8. Add an acceleration clause that makes the full balance due immediately upon default, standard in commercial notes.
9. Sign and date the note. The borrower must sign; if your business is an entity, include your title. The lender does not typically sign a promissory note, but some forms include a lender acknowledgment section.
10. Retain an executed copy for your business records and provide the original to the lender.
What lenders look for
- Banks scrutinize the payment-to-income ratio, so ensure your projected cash flow genuinely supports the payment schedule you commit to. Overcommitting raises red flags.
- Missing details like maturity date or vague default terms make the note unenforceable and will delay or kill your loan approval. Every blank must be complete and internally consistent.
- If you're personally guaranteeing the note, underwriters will pull your personal credit and assets, so be prepared for that additional layer of due diligence.