A promissory note is a written promise to pay a certain amount of money to the person named in the note. A promissory note can be an unsecured or a secured promissory note.

Promissory notes are given when the borrower fails to pay their debts. Usually, they are secured by something valuable such as a car or land. If the borrower fails to repay the loan, the lender will take their property. If you are not ready to repay your debts on the specified date, it is mandatory to talk with your creditor to extend the time of loan otherwise you may have to give away your property as per the agreement.

Why do you need a promissory note to generate income?

If you often take out loans for business purposes, then you should include a promissory note specifying all loan amounts and the conditions of repayment. The promissory note ensures that both the borrower and lender can avoid any conflicts or misunderstandings. If you want to explore why promissory notes are essential to generate, then check out the reasons below;

Serves as a Legal Proof

Promissory notes must be drafted by an individual with the abilities of a lawyer. They guarantee repayment of loan and secure the truthfulness of the loan.

A Business Investment

The promissory note is a legal document or an agreement that represents a promise to repay a debt. The purpose of the promissory note is to clearly state the terms and conditions of the loan transaction and reduce any misunderstandings between both parties.

Establishes a Repayment Process

A promissory note is a document that establishes the terms of the loan, which are then agreed upon by both parties. An amortization schedule is an important part of a promissory note.

Sorts out the Tax Issues

If you are not paying off your loan, you can be charged additional taxes if it is considered a gift. However, if you have a Promissory Note, it will prove that the loan was not made as a gift.

Promissory Note Forms

The essential elements of a promissory note template include

Promissory notes are legally binding agreements signed by the borrower and the lender. The promissory note, which is also known as a loan agreement, outlines the terms on which an individual or company borrows money from a lender.

The Payee of the Promissory Notes: You are lending the money to this person or entity.

The Payer of the Promissory Note: This is the person or entity who has the option of repaying the debt.

The Amount of the Promissory Note: This is the amount of money borrowed by the borrower.

The Date of Promissory Note: The date when the Payer promises to repay the amount of the loan to the Payee.

The Interest Rate of the Promissory Note: This is an amount of interest that will be charged on the amount of loan. The rate can be compounded or simple.

Terms of the Prepayment Penalties of the Promissory Note: Promissory notes are often used to raise funds. These notes may or may not include a prepayment penalty, depending on the lender.

The Date the Promissory Note Ends: The promissory note will end on this date. You can pay in equal payments or on a certain date.

Promissory Note Samples

What are the Types of Promissory Notes?

There are two types of promissory notes; secured promissory notes and un-secured promissory notes. Both types are elaborated below.

Secured Promissory Notes

A promissory note is a document in which you promise to pay someone a specific amount of money by a certain date. If you fail to pay, the lender has the right to take whatever the promissory note was secured by.

Unsecured Promissory Notes

Unsecured promissory notes are given by the borrower to the lender in which the borrower does not put anything significant as a security for loan amount. A secured promissory note is a different type of promissory note, one that can actually be enforced by law. When you file it among someone you know well, they are more likely to honor it.

Promissory Note Examples

How to Make a Promissory Note Template?

Once you’re aware of the importance of promissory notes, you may want to know how to make them for your business.

So, let’s begin.

Step #1: Terms and Conditions of the Promissory Note

The lender and borrower must agree to a set of terms. For example, the number of years for repayment, the interest rate, the date payments are due, and how to deal with late or missed payments.

Step # 2: Choose the Type of Promissory Note

Before you write the terms and conditions, you need to decide whether or not you will be using a promissory note. A secured promissory note is generally better than an unsecured promissory note.

When you choose the secured type, that means that the person borrowing the money has pledged to give up certain property and that you have the right to take charge of the property as security for the loan amount.

Step # 3: Ensure About an Enforceable Promissory Note

If you want to make a promissory note legally binding, make sure you include all the necessary information, for example, names of the lender and borrower, phone numbers, addresses, signatures of everyone involved and witnesses. When the above elements are included in the promissory note, it is considered as enforceable.

FREE Promissory Note

Do you need a lawyer to create your Promissory Note?

In order to ensure you have a legal agreement drawn up, it is wise to work with a lawyer as they can help you draft and write the promissory note properly.

If you are downloading one, they can be helpful in filling it properly. Lawyers can be helpful for both the parties. The lawyers can help lenders by discussing options for recovery of damages.

If you’re looking for a promissory note template now, you can simply download a free promissory note from our main website and save your time by editing it with your lawyer. Good luck!