What this form is for
A promissory note is the borrower's legally binding promise to repay a specific loan amount to a lender, documenting the principal, interest rate, payment schedule, maturity date, and what happens if you default. Business owners use this when borrowing from banks, credit unions, private lenders, or even friends and family to formalize the debt obligation.
Before you start
- Loan amount (principal) agreed upon with your lender
- Annual interest rate and whether it's fixed or variable
- Repayment terms: payment frequency (monthly, quarterly), amount per payment, and final maturity date
- Borrower and lender legal names, addresses, and tax identification numbers (EIN or SSN)
- Collateral description if the note is secured by business assets or property
- Default interest rate or late fee structure if the lender requires penalty terms
Step-by-step
1. Fill in the date you're executing the note and the city where you're signing it, which establishes when the obligation begins.
2. Enter the principal amount in both numerals and written words to prevent disputes (example: $50,000 and "Fifty Thousand Dollars").
3. Record the lender's full legal name and address exactly as it appears on their business registration or identification documents.
4. Specify the interest rate and calculation method. In Texas, there's no usury cap for commercial loans, but consumer loans over $250,000 or business loans must comply with applicable federal limits.
5. Detail the repayment schedule: first payment date, payment amount, frequency, and final maturity date when the entire remaining balance is due.
6. If secured, describe the collateral clearly (equipment, inventory, real estate) and reference any separate security agreement.
7. Define events of default beyond missed payments, such as bankruptcy filing, breach of other loan covenants, or material adverse changes in your business.
8. Complete the acceleration clause, which allows the lender to demand full immediate repayment if you default.
9. Add any prepayment terms if you want the option to pay off the loan early without penalty.
10. Sign and date in the presence of a notary if required by your lender. Texas doesn't mandate notarization for promissory notes, but many lenders require it for enforceability.
What lenders look for
- Banks scrutinize whether the interest rate and terms match your loan application and credit approval letter. Discrepancies between your promissory note and other loan documents raise red flags and delay funding.
- Vague or missing payment schedules are the most common error. Underwriters need exact due dates and amounts, not "monthly payments to be determined" or ambiguous language.
- Texas follows a four-year statute of limitations on written contracts, so lenders want clear default provisions and may require a confession of judgment clause or personal guarantee attachment.