Simple promissory note

Put a loan between people or businesses in writing. Enter the amount, rate and term and the monthly payment works itself out. Print it for the borrower to sign.

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What a promissory note is

A promissory note is a signed promise to repay a stated amount, on stated terms. It is the usual paperwork for a loan from a family member, a business partner, or a seller who agrees to carry part of the price on a machine.

When you use one

A family member or friend lends money for a down payment or a business.
A seller lets the buyer pay over time.
An owner lends money to their own company, or the other way around.

What to include

The legal names and addresses of the borrower and lender.
The amount, the rate, and exactly when payments are due.
What happens if a payment is late or missed.
What secures it, if anything. For a machine, give the year, make, model and serial number.

What the form asks for

The loan: Date of the note; Amount borrowed; Interest rate a year; State whose law applies.
Borrower: Borrower name; Street address; City; State; ZIP.
Lender: Lender name; Street address; City; State; ZIP.
Repayment: How it gets repaid; Number of monthly payments; First payment date; Due date; Late fee, if a payment is over 10 days late.
Security: Is it secured by property?; What secures it.

The wording on the printed document

Payments. The Borrower will pay ________ equal monthly payments of ________, starting ________ and on the same day of each month after that, until the balance and interest are paid.

Payment. The Borrower will pay the balance and all interest in one payment on ________.

Prepayment. The Borrower may pay all or part of the balance early, with no penalty.

Late payments. If a payment is more than 10 days late, the Borrower will pay a late fee of ________.

Security. This note is secured by the following property: ________.

Default. If the Borrower misses a payment and does not fix it within 15 days of written notice, the Lender may require the entire balance and interest to be paid at once. The Borrower will pay the Lender's reasonable collection costs, including attorney fees, to the extent the law allows.

Changes. Any change to this note must be in writing and signed by the Borrower and the Lender. If the Lender accepts a late or partial payment, the Lender keeps all its rights.

Governing law. The laws of ________ govern this note.

This is a general template, not legal advice. Check with an attorney for your situation.

Common questions

Who signs a promissory note?
The borrower, always. Many people have the lender sign too, as this form does. The original belongs with the lender until it is paid off.

What interest rate can I charge?
States set limits, called usury laws, and they vary by state and loan type. Check your state's rule before you pick a rate. On a loan between family members, an interest rate that is too low can also have tax effects, so ask your accountant.

Does a promissory note need a notary?
Usually not, though notarizing it makes it harder for anyone to dispute the signature later. Check your state's rules if the note is tied to real estate or a filing.

Does this note give me a lien on the machine?
Not by itself. Naming collateral in the note is a start, but a lender usually also needs a separate security agreement, plus a UCC filing or a lien noted on the title, to have a protected lien.

How is the monthly payment worked out?
It is the standard fixed-rate loan payment, from the amount, rate and number of months. Our payment calculator shows the same math, with a year-by-year schedule.

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