A promissory note is a document that you can use in a variety of situations. Loan agreements work for car loans, student loans, and institutional business loans. Here are a few examples of when you might use this type of loan agreement—and why it’s a good idea:
A business loan from a family member
Luciana wants to turn her side hustle into a fully fledged business, but she needs a little bit of capital to get her going. She runs an in-home grooming business and wants to buy a truck that she can transform into a mobile pet spa 🐩.
Luciana’s aunt agrees to fund part of her venture with a $5,000 personal loan. Both parties sign a promissory note to confirm that Luciana will pay her aunt back in five installments over the course of 18 months.
Or a mortgage from a bank, with a co-signer
Jake and Dom want to buy a house. To do so, they need to get a mortgage. The bank they get the mortgage from gives them a promissory note to sign.
This loan agreement complements a legally binding mortgage note contract, and confirms the principal, interest, and timeline of payment. Jake and Dom sign to agree that they’ll repay the loan by the mortgage maturity date.
A loan to a friend in a bind
Emma and Kate are friends. They both know that borrowing money from friends can get messy 🥴. That’s why they want to use a written loan agreement while Emma lends $1,000 to Kate.
A promissory note takes away those awkward interactions. Emma doesn’t have to ask Kate how her new job is going and whether she has the money yet. Kate is good at sticking to deadlines, so it’s a win-win. The agreement does the leg work—and Emma and Kate can focus on being pals.
Promissory Note Template
Last Revised: March 2022
The Loan Agreement (the Agreement) is made on START DATE, between LENDER NAME (the Lender), at the address of LENDER ADDRESS, and BORROWER NAME (the Borrower), at the address of BORROWER ADDRESS. At times in this Agreement the Borrower and Lender maybe individually referred to as a “party” or jointly as the “parties”.
The Lender agrees to lend the Borrower the principal sum of $ PRINCIPAL United States Dollars, hereinafter referred to as “the Principal”, pursuant and subject to the terms of the Agreement. And the Borrower agrees to repay the Principal in addition to an annual interest rate of INTEREST RATE % computed on a monthly basis, and to be repaid in full on or before MONTHS Gregorian calendar month(s) as of the date first written above hereinafter referred to as the “Due Date”.
Payments, Repayments and Prepayments
The Loan, defined for the purposes of this Agreement as the Principal plus the agreed upon interest rate, will be due and payable in full on the Due Date. The full balance of the Loan will be paid off in regular installments scheduled on a monthly basis, as agreed upon by both parties. The first repayment installment will be due one month following the successful transfer of the Principal from the Lender to the Borrower. Additionally, no Interest may be accrued on the Principal before the repayment schedule is initiated.
The Borrower may, at its option, pay off the full balance of the Loan, may be paid off in full before the Due Date, without penalty. Similarly, the Borrower may, at its option, repay sums of money before they specifically demanded, including but not limited to paying more than the expected amount of money due on monthly installments.
Additionally, money that is not paid on-time by the Borrower, will continue to accrue the Interest Rate outlined in this Agreement. Late payments will otherwise not be subject to penalties.
Payments made by either party can be made in any format, including but not limited to bank transfers, cash deposits, and through other online payment platforms.
All payments of principal and interest on this Loan shall be paid in the legal currency of the United States.
The Loan shall be unsecured. Borrower does not grant Lender a security interest in any property or asset.
If the Borrower has outstanding financial obligations to the Lender and would like to extend the loan, they may do so up to one month preceding the Due Date. The loan may be extended for a minimum time period of a month, and for a maximum time period of twelve (12) months, and must be agreed upon by both parties. Throughout the extension period, the Borrower must pay off the remaining balance of the loan outlined in this Agreement, and an additional interest annual rate of 3% computed monthly, on the outstanding loan balance will be payable to the Lender.
Under this Agreement, there shall be no persons or entities responsible for the repayment of the Loan other than the Borrower. The Borrower acknowledges and agrees that it has no guarantors for this Loan.
Events of Default
If any of the following events of default occur, this Loan and any other obligations of the Borrower to the Lender, shall become due immediately, without demand or notice:
- the failure of the Borrower to pay the principal and any accrued interest as detailed when due;
- the liquidation or dissolution of the Borrower, or the death or incompetency of the Borrower;
- the filing of bankruptcy proceedings involving the Borrower as a debtor;
- the application for the appointment of a receiver for the Borrower;
- the making of a general assignment for the benefit of the Borrower's creditors;
- the insolvency of the Borrower;
If the Borrower defaults under this Agreement and fails to repay the Loan in full by the Due Date, the unpaid principal shall accrue interest at the maximum rate allowed by law, until the Borrower is no longer in default.
If the Borrower defaults under this Agreement and does not remedy the default within the minimum allotted time period as prescribed by the governing laws following a written notice of default, the Lender reserves the right to declare outstanding sums payable and due immediately.
Attorney’s Fees and Costs
The Borrower agrees to pay the following costs, expenses, and attorney fees paid or incurred by Lender, or adjudged by a court: (a) reasonable costs of collection and costs, expenses, and attorney fees paid or incurred in connection with the collection or enforcement of this Loan, whether or not suit is filed; (b) reasonable costs, expenses, and attorney fees paid or incurred in connection with representing Lender in any bankruptcy, reorganization, receivership, or other proceedings affecting creditors’ rights and involving a claim under this Loan; and (c) costs of suit and such sum as the court may adjudge as attorney fees in any action to enforce payment of this Agreement or any part of it.
The Lender shall be not held liable for any injuries, loss, damages, or costs which may incur from Borrower’s or third-party actions in connection with funds related to the Loan. Borrower agrees to indemnify Lender from any legal expenses that may result from lawsuits or proceedings related to such actions.
All notices required or permitted under this Agreement shall be in writing and delivered by electronic mail or certified US mail in a timely manner.
Waiver of Presentment
Borrower, endorsers, and all other persons liable or to become liable on this Loan waive presentment, protest, and demand; notice of protest, demand, and dishonor; and all other notices or matters of a like nature.
Any failure or delay by the Lender in exercising or enforcing the Lender’s rights under this Agreement shall not be considered a waiver of such rights. Furthermore, there shall be no implied waiver of the Lender’s rights if the Lender waives any obligation of the Borrower in connection with this Agreement. For avoidance of doubt, a delay failure to accelerate the debt evidenced hereby by reason of default in the payment of a monthly installment or the acceptance of a past-due installment shall not be construed as a waiver of the right of Lender to thereafter insist upon strict compliance with the terms of this Agreement without notice being given to Borrower. All rights of the Lender under this Agreement are cumulative and may be exercised concurrently or consecutively at the Lender's option.
Neither party shall have the right to assign or subcontract any part of its obligations under this Agreement.
This Agreement may only be amended by a writing executed by both the Borrower and the Lender.
This Agreement was entered into at arm's length, without duress or coercion, and is to be interpreted as an agreement between parties of equal bargaining strength. Both the Borrower and the Lender agree that this Agreement is clear and unambiguous as to its terms, and that no parole or other evidence will be used or admitted to alter or explain the terms of this Agreement, but that it will be interpreted based on the language within its four corners in accordance with the purposes for which it is entered into.
Execution in Counterparts
This Agreement may be executed in multiple counterparts, which shall be deemed an original but all of which together shall constitute one and the same instrument. Signatures exchanged electronically shall be valid and effective as original signatures.
If any provision of this Agreement is held void, invalid, or unenforceable by a court of competent jurisdiction, the remainder of this Agreement, and the application of such provision to other parties or circumstances, shall not be affected thereby, the provisions of this Agreement being severable in any such instance.
This Agreement supersedes all prior understanding, written or oral, between the parties.
This Agreement shall be governed under the laws and jurisdiction of LENDER STATE.
IN WITNESS WHEREOF, this Agreement has been executed and delivered in the manner prescribed by law as of the date first written above.