What this form is for
A Promissory Note is used when your business borrows money and needs to document the repayment obligation in writing. Banks require this signed document to formalize the loan amount, interest rate, payment schedule, and what happens if you default.
Before you start
- Loan amount in dollars and the exact date funds will be or were disbursed
- Annual interest rate percentage agreed with the lender (fixed or variable)
- Repayment terms: total number of payments, payment frequency (monthly, quarterly), and final due date
- Collateral description if the loan is secured by business assets or personal property
- Business legal name, EIN, and registered address; personal guarantor information if applicable
Step-by-step
1. Fill in the date of the note and the principal loan amount in both numerals and written words to prevent alteration disputes.
2. Identify the borrower by full legal business name and address, and the lender by legal name and address. If you are signing personally as a guarantor, include your individual name as well.
3. State the annual interest rate and whether it is fixed or variable. In Texas, there is no usury cap for business loans, but personal loans over certain thresholds require compliance with state usury laws if applicable.
4. Specify the payment schedule: amount of each installment, due date of the first payment, frequency, and maturity date when the full balance is due. Indicate whether payments are interest-only or principal-plus-interest.
5. Describe any collateral securing the note. If unsecured, state that explicitly. Texas is a non-judicial foreclosure state for certain secured transactions, so clarify the security interest.
6. Detail prepayment terms: whether you can pay off the loan early without penalty and if any prepayment fees apply.
7. Outline default conditions and remedies, including grace periods, late fees, and acceleration clauses allowing the lender to demand full repayment immediately upon default.
8. Add any special covenants or conditions, such as financial reporting requirements or restrictions on additional borrowing.
9. Sign and date the note in the presence of a notary if required by the lender. Keep a fully executed copy for your records.
What lenders look for
- Underwriters verify that payment amounts match the amortization schedule and that the maturity date aligns with your business cash flow projections, so double-check all calculations before signing.
- Missing or inconsistent information between the Promissory Note and other loan documents (like security agreements) raises red flags and delays funding.
- In Texas, ensure any personal guarantees are clearly stated; lenders often require both business and personal liability for small-business loans.