What is a promissory note and why would I need one?

A promissory note is a written promise to repay a specific sum of money to a lender under defined terms. You'd use one to formalize a loan agreement, whether it's a loan from a bank or alternative lender, a loan between family members or friends, or a loan between a business and its owners. A note documents the amount borrowed, the interest rate, the repayment schedule, and what happens if the borrower doesn't pay, which helps prevent misunderstandings and gives both sides a clear, enforceable record of the debt.

What key elements should be included in a promissory note?

A complete promissory note generally includes: 1) the names and contact information of the maker and payee, 2) the principal amount borrowed, 3) the interest rate and how it's calculated, 4) the repayment terms (amounts, frequency, and due dates), 5) the maturity date, 6) any collateral securing the loan, 7) default provisions and remedies, 8) prepayment terms, 9) signatures, and 10) the date of execution. Which of these matter most, and what limits apply to them, such as the maximum interest rate, depends on the state whose law governs the note.

What's the difference between a secured and an unsecured promissory note, and which is better?

A secured note is backed by collateral, property the lender can claim if the borrower defaults, while an unsecured note relies only on the borrower's promise to pay. Secured notes typically carry lower interest rates because they're less risky for the lender, but the borrower risks losing the pledged property. Unsecured notes don't put a specific asset at risk but often come with a higher rate and can be harder to obtain. Which makes sense depends on what collateral is available and how much risk each side is willing to take on.

How is the interest rate on a promissory note limited?

Most states set a maximum legal interest rate for an ordinary private loan, commonly called a usury cap. The cap itself is not the same everywhere: some states use a single flat percentage, others use a tiered structure based on the size or purpose of the loan, and others tie the maximum rate to a floating benchmark. Certain categories of lender, such as banks and licensed finance companies, are often exempt from the cap. Because there is no single nationwide limit, the actual maximum rate for a given note depends on the state whose law governs it.

Does a promissory note need to be notarized?

Generally, no. In most states, notarization is not one of the requirements for a note to be a valid, enforceable negotiable instrument. Notarizing a note is commonly optional and can serve as evidence of who signed it, but this varies by state, so it's worth confirming the specific rule where the note is being signed if notarization matters to you.

What happens if the borrower defaults on a promissory note?

Consequences commonly include: 1) the full remaining balance becoming immediately due if the note has an acceleration clause, 2) late fees or a higher default interest rate applying, 3) the lender pursuing legal action to collect, 4) the lender seizing any pledged collateral if the note is secured, and 5) damage to the borrower's credit. Some states also allow a confession-of-judgment clause that lets the lender obtain a judgment faster, though a number of states restrict or ban this kind of clause. Exactly which remedies are available depends on state law and on how the note itself is written.

Can I use a promissory note for a family loan, or is it only for business financing?

Yes. A promissory note works for a family loan or a loan between friends just as it does for a small business loan or a loan between an LLC and its members. For a personal loan, a written note helps maintain clarity and prevents misunderstandings that could affect the relationship. The same document structure applies across these situations, though which interest rate cap and other rules apply can depend on both the purpose of the loan and the state whose law governs it.

What's the difference between a promissory note and a loan agreement?

A promissory note is typically a shorter document that functions as evidence of debt and a promise to repay, focused on the essential terms: amount borrowed, interest rate, payment schedule, and maturity date. A loan agreement is usually more comprehensive, covering the broader relationship between borrower and lender, including representations, ongoing covenants, and detailed conditions. For a simple loan between individuals, a note alone is often enough. For more complex financing, both documents are sometimes used together, a loan agreement governing the overall relationship and a note serving as the actual debt instrument.

As a minority or women-owned business (MWBE), are there special considerations for a promissory note?

If you're using an MWBE-specific loan program, any preferential rate, term, or certification-related condition the program offers should be reflected accurately in the note, and it's worth checking whether the program has separate reporting requirements referenced in the loan documents. Beyond those program-specific details, the same general rules on interest rate limits, default, and repayment structure apply as they would to any other business loan.

Promissory Note

Free promissory note template for a family loan, small business loan, or LLC loan. Interest rate caps and other rules vary by state. Attorney review available.

Introduction

A promissory note is a written, signed promise by one party, the maker, to pay a definite sum of money to another party, the payee, either on demand or by a set date. It's the paper trail behind a loan, and it's what makes a debt legally enforceable if the maker doesn't pay. The same basic document works for different situations: a loan between family members or friends, a small business borrowing working capital, or a loan between an LLC and one of its own members. What changes isn't the note's core structure, it's the state law that governs it. Every state sets its own maximum legal interest rate (a "usury cap") for an ordinary private loan, and these caps vary widely, from a flat percentage to a tiered or floating-rate system, with certain lenders often exempt. States also differ on whether a note needs to be notarized, how long you have to sue on a missed payment, and whether a confession-of-judgment clause (letting a lender obtain a judgment without a lawsuit) is allowed at all. Because these rules are state-specific, select your state below for a template built around that state's actual interest rate cap, statute of limitations, and filing requirements. Attorney review is available if you want a licensed attorney to look over the finished note before you sign it.

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Key Things to Know

1
A promissory note is a written, signed promise by one party (the maker) to pay a definite sum of money to another party (the payee), either on demand or by a set date. Most states recognize a similar set of requirements for a note to count as a valid, enforceable negotiable instrument: an unconditional promise, a fixed amount, a signature, and payment on demand or at a definite time.
2
Most states cap the interest rate a lender can charge on an ordinary private loan (a "usury cap"), but the cap itself varies significantly from state to state, some set a single flat percentage, others use a tiered system based on loan size or purpose, and others tie the cap to a floating benchmark rate. There is no single national interest rate limit, so check the cap for the state whose law governs your note.
3
Many states exempt certain categories of lender, such as banks, credit unions, and state-licensed finance lenders, from their usury caps entirely. A usury cap typically targets the general private person-to-person or person-to-business loan, not every kind of lending transaction.
4
In most states, a promissory note does not need to be notarized or witnessed to be enforceable. Notarization is commonly optional and used mainly as evidence of who signed the note, but this can vary, so confirm the rule for your state if notarization matters to you.
5
An unsecured note relies only on the maker's promise to pay. A secured note is backed by collateral that the payee can claim if the maker defaults, and in most states, a lender that takes personal property as collateral needs to file a UCC-1 financing statement with the appropriate state agency to protect its priority against other creditors.
6
Confession-of-judgment clauses, which let a payee obtain a court judgment against the maker without filing a full lawsuit, are restricted or banned outright in a number of states, and treated differently depending on the size or purpose of the loan in others. Whether this kind of clause is usable at all depends heavily on the state whose law governs the note.
7
How long you have to sue to collect on a missed payment (the statute of limitations) is set by each state individually and commonly runs several years from the missed payment or the note's due date, but the exact period differs by state and can be shorter for certain types of consumer loans.
8
The same promissory note format is commonly used for a family loan, a loan between friends, a small business loan, and a loan between an LLC or other business entity and its own members, among other situations. The document's core mechanics stay the same across these uses, but the interest rate limit, notarization rule, statute of limitations, and confession-of-judgment rule that apply all depend on the state whose law governs the loan.

Key Decisions

Minority or Disadvantaged Business Owner

First-time Small Business Owner

Established Small Business Owner Seeking Expansion Capital

Minority or Women Business Owner (MWBE)

Promissory Note Requirements

Lender's Information
Full legal name, address, and contact information of the individual or entity providing the loan.
Borrower's Information
Full legal name, address, and contact information of the individual or entity receiving the loan. For businesses, include the legal business name, entity type, and EIN.

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PROMISSORY NOTE

Date of Execution: [DATE]

Loan Amount: [AMOUNT IN NUMBERS] ([AMOUNT IN WORDS])

1. PARTIES

Lender: [LENDER NAME], a [ENTITY TYPE] with its principal place of business at [LENDER ADDRESS], [LENDER CITY], [LENDER STATE] [LENDER ZIP CODE], [LENDER PHONE], [LENDER EMAIL] (hereinafter referred to as the "Lender").

Borrower: [BORROWER NAME], a [ENTITY TYPE] with its principal place of business at [BORROWER ADDRESS], [BORROWER CITY], [BORROWER STATE] [BORROWER ZIP CODE], [BORROWER PHONE], [BORROWER EMAIL], [EIN/TAX ID] (hereinafter referred to as the "Borrower").

2. PROMISE TO PAY

FOR VALUE RECEIVED, the Borrower hereby unconditionally promises to pay to the order of the Lender the principal sum of [AMOUNT IN NUMBERS] ([AMOUNT IN WORDS]) (the "Principal Amount"), together with interest accrued on the unpaid Principal Amount at the rate specified herein, in accordance with the terms and conditions set forth in this Promissory Note (the "Note").

3. LOAN TERMS

3.1 Principal Amount

The Principal Amount of this Note is [AMOUNT IN NUMBERS] ([AMOUNT IN WORDS]).

3.2 Interest Rate

Interest shall accrue on the unpaid Principal Amount at a [FIXED/VARIABLE] rate of [INTEREST RATE]% per annum, calculated on the basis of a 365-day year for the actual number of days elapsed.

[IF VARIABLE RATE: The interest rate shall be adjusted [FREQUENCY OF ADJUSTMENT] based on [REFERENCE RATE] plus [MARGIN]%. The Lender shall provide written notice to the Borrower of any change in the interest rate at least [NUMBER] days prior to the effective date of such change.]

3.3 Term

This Note shall commence on [START DATE] (the "Effective Date") and, unless earlier accelerated in accordance with the terms hereof, shall mature and be due and payable in full on [MATURITY DATE] (the "Maturity Date").

3.4 Payment Schedule

The Borrower shall repay the Principal Amount and accrued interest in [NUMBER] [MONTHLY/QUARTERLY/ANNUAL] installments of [PAYMENT AMOUNT] each, commencing on [FIRST PAYMENT DATE] and continuing on the [DAY] day of each [MONTH/QUARTER/YEAR] thereafter until the Maturity Date. The final payment shall include all remaining Principal Amount and accrued and unpaid interest.

Each payment shall be applied first to accrued and unpaid interest, and then to the outstanding Principal Amount.

3.5 Payment Method

All payments shall be made in lawful money of the United States of America and shall be made by [PAYMENT METHOD(S)] to:

[LENDER PAYMENT ADDRESS/ACCOUNT INFORMATION]

or to such other address or account as the Lender may designate in writing to the Borrower from time to time.

3.6 Prepayment

The Borrower may prepay all or any portion of the Principal Amount at any time without penalty or premium. All prepayments shall be applied first to accrued and unpaid interest, and then to the outstanding Principal Amount. Partial prepayments shall not affect the Borrower's obligation to make subsequent scheduled payments until this Note is paid in full.

[ALTERNATIVE: The Borrower may prepay all or any portion of the Principal Amount at any time, subject to a prepayment penalty equal to [PERCENTAGE]% of the amount prepaid if such prepayment occurs within [NUMBER] months of the Effective Date. After such period, prepayment may be made without penalty or premium.]

3.7 Late Payment Provisions

If any payment due under this Note is not received by the Lender within [NUMBER] days after its due date (the "Grace Period"), the Borrower shall pay a late fee equal to [PERCENTAGE]% of the amount of such payment. Such late fee shall be immediately due and payable without demand by the Lender.

Interest on any overdue payment (including any applicable late charges) shall accrue from the date such payment was due (without regard to any applicable Grace Period) until paid at a rate equal to the lesser of (i) the regular interest rate plus [PERCENTAGE]% per annum, or (ii) the maximum rate permitted by applicable law.

4. SECURITY AND COLLATERAL

4.1 Secured/Unsecured Status

This Note is [SECURED/UNSECURED].

[IF SECURED, INCLUDE THE FOLLOWING SECTIONS:]

4.2 Collateral Description

As security for the payment and performance of all obligations under this Note, the Borrower hereby grants to the Lender a continuing security interest in and to the following property (collectively, the "Collateral"):

[DETAILED DESCRIPTION OF COLLATERAL, INCLUDING:

Identification numbers
Locations
Estimated values
Any other identifying information]

The Borrower represents and warrants that it has good and marketable title to the Collateral, free and clear of any liens, claims, or encumbrances other than those disclosed to and accepted by the Lender in writing prior to the execution of this Note.

4.3 Perfection of Security Interest

The Borrower agrees to execute and deliver to the Lender any financing statements, continuation statements, assignments, certificates of title, and other documents and instruments as the Lender may reasonably require to perfect and maintain the Lender's security interest in the Collateral under the Uniform Commercial Code or other applicable law. The Borrower authorizes the Lender to file any such financing or continuation statements without the Borrower's signature.

4.4 Maintenance and Inspection of Collateral

The Borrower shall maintain the Collateral in good condition, reasonable wear and tear excepted, and shall not sell, lease, transfer, or otherwise dispose of the Collateral without the prior written consent of the Lender. The Borrower shall keep the Collateral insured against loss or damage in amounts and with insurers satisfactory to the Lender, with policies naming the Lender as loss payee. The Lender shall have the right to inspect the Collateral at any reasonable time upon reasonable notice to the Borrower.

4.5 Guarantor Information

[IF APPLICABLE:] This Note is guaranteed by [GUARANTOR NAME], residing at [GUARANTOR ADDRESS], [GUARANTOR CITY], [GUARANTOR STATE] [GUARANTOR ZIP CODE], [GUARANTOR PHONE], [GUARANTOR EMAIL] (the "Guarantor"), pursuant to a separate Guaranty Agreement of even date herewith.

5. DEFAULT PROVISIONS

5.1 Events of Default

The occurrence of any of the following events shall constitute an "Event of Default" under this Note:

(a) The Borrower fails to make any payment of principal, interest, or any other amount due under this Note within the Grace Period after the date when due;

(b) The Borrower breaches any representation, warranty, covenant, or agreement contained in this Note or any related security agreement, guaranty, or other loan document;

(c) The Borrower or any Guarantor (i) files a voluntary petition in bankruptcy, (ii) is adjudicated bankrupt or insolvent, (iii) files any petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any present or future bankruptcy or insolvency statute, law, or regulation, (iv) seeks or consents to or acquiesces in the appointment of any trustee, receiver, conservator, or liquidator, or (v) makes any general assignment for the benefit of creditors;

(d) A court of competent jurisdiction enters an order, judgment, or decree approving a petition filed against the Borrower or any Guarantor seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any present or future bankruptcy or insolvency statute, law, or regulation, and such order, judgment, or decree remains unvacated and unstayed for a period of sixty (60) days;

(e) Any representation or warranty made by the Borrower or any Guarantor to the Lender in connection with this Note proves to have been false or misleading in any material respect when made;

(f) The Borrower or any Guarantor defaults under any other material obligation for borrowed money;

(g) A material adverse change occurs in the financial condition of the Borrower or any Guarantor;

(h) The Collateral is lost, stolen, or materially damaged, if this Note is secured;

(i) The death, dissolution, or termination of existence of the Borrower or any Guarantor; or

(j) The Borrower fails to maintain and preserve the Collateral as required herein, if this Note is secured.

5.2 Acceleration Clause

Upon the occurrence of an Event of Default, the Lender may, at its option and without notice or demand, declare the entire outstanding Principal Amount, together with all accrued interest and all other amounts payable under this Note, immediately due and payable, and the Borrower shall immediately pay the same to the Lender. The Lender's failure to exercise this option shall not constitute a waiver of the right to exercise the same at any subsequent time.

5.3 Remedies Upon Default

Upon the occurrence of an Event of Default, the Lender shall have and may exercise any or all of the following rights and remedies, concurrently or consecutively, in addition to any other rights or remedies provided by law:

(a) The Lender may exercise any or all remedies available under the Uniform Commercial Code or other applicable law;

(b) The Lender may take possession of the Collateral wherever it may be found, using all reasonable means to do so, and may require the Borrower to assemble the Collateral and make it available to the Lender at a place designated by the Lender that is reasonably convenient to both parties;

(c) The Lender may sell, lease, or otherwise dispose of the Collateral at public or private sale in accordance with the Uniform Commercial Code or other applicable law;

(d) The Lender may proceed by suit or suits at law or in equity to enforce payment of this Note and to foreclose upon the Collateral and to sell the same under judgment or decree of a court of competent jurisdiction; and

(e) The Lender may pursue any other remedy available to it at law or in equity.

The Borrower shall be liable for any deficiency remaining after disposition of the Collateral.

6. LEGAL PROVISIONS

6.1 Governing Law

This Note shall be governed by and construed in accordance with the laws of the State of [STATE], without giving effect to any choice of law or conflict of law provisions. The Borrower consents to the jurisdiction of the courts of the State of [STATE] and agrees that venue shall be proper in [COUNTY] County, or in any other county where the Lender initiates legal action.

6.2 Waiver Provisions

The Borrower and any endorsers, sureties, guarantors, and all others who are, or may become liable for the payment hereof severally: (a) waive presentment for payment, demand, notice of dishonor, protest, and notice of protest of this Note, and all other notices in connection with the delivery, acceptance, performance, default, or enforcement of the payment of this Note; (b) consent to all extensions of time, renewals, postponements of time of payment of this Note or other modifications hereof from time to time prior to or after the maturity date hereof, whether by acceleration or in due course, without notice, consent, or consideration to any of the foregoing; (c) agree to any substitution, exchange, addition, or release of any of the Collateral or any other party or person primarily or secondarily liable hereon; and (d) waive all rights of set-off and rights to interpose any defense, counterclaim, or offset of any nature and description in any action or proceeding arising on, out of, under, or by reason of this Note.

The Lender's failure to exercise any of its rights, remedies, or powers set forth herein or the Lender's acceptance of partial payments or any other indulgence granted to the Borrower shall not constitute a waiver of any such right, remedy, or power or of any Event of Default, nor shall any single or partial exercise of any such right, remedy, or power preclude any other or further exercise thereof or the exercise of any other right, remedy, or power.

6.3 Severability Clause

If any provision of this Note, or any portion thereof, or the application thereof to any person or circumstance shall to any extent be invalid or unenforceable, the remainder of this Note, or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each provision of this Note shall be valid and enforceable to the fullest extent permitted by law. In the event any provision of this Note conflicts with applicable law, such provision shall be deemed modified to comply with applicable law in a manner that most closely reflects the intent of the original provision.

6.4 Amendment Procedures

This Note may not be modified, amended, waived, extended, changed, discharged, or terminated orally or by any act or failure to act on the part of the Borrower or the Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge, or termination is sought. Any such modification shall not require the consent of any other person or entity not a party to this Note.

6.5 Attorney Fees Provision

The Borrower agrees to pay all costs of collection when incurred, including reasonable attorneys' fees and expenses, whether or not any legal action is instituted to enforce this Note. Such costs shall include, but not be limited to, any costs incurred by the Lender in connection with any insolvency, bankruptcy, reorganization, arrangement, or other similar proceedings involving the Borrower that in any way affects the exercise by the Lender of its rights and remedies under this Note. If any action or proceeding is brought by the Lender to enforce the terms of this Note, the prevailing party shall be entitled to recover its costs and reasonable attorneys' fees incurred in such action or proceeding, in addition to any other relief to which such party may be entitled.

6.6 Successors and Assigns Clause

This Note shall be binding upon and inure to the benefit of the Borrower and the Lender and their respective heirs, executors, administrators, legal representatives, successors, and assigns. The Lender may assign or transfer this Note or any of its rights hereunder at any time without the consent of the Borrower. The Borrower may not assign or transfer this Note or any of its obligations hereunder without the prior written consent of the Lender, and any attempted assignment without such consent shall be null and void.

6.7 Notice Requirements

All notices, requests, demands, and other communications required or permitted to be given under this Note shall be in writing and shall be deemed to have been duly given if delivered personally, sent by nationally recognized overnight courier, or mailed by registered or certified mail, return receipt requested, postage prepaid, to the parties at their respective addresses set forth in Section 1 of this Note, or to such other address as either party may designate by written notice to the other. All such notices, requests, demands, and other communications shall be deemed to have been received: (i) if delivered personally, on the date of delivery; (ii) if sent by nationally recognized overnight courier, on the next business day after deposit with the courier service; or (iii) if mailed as provided above, on the third business day after the mailing thereof.

7. SPECIAL PROVISIONS

7.1 Loan Purpose Statement

The Borrower represents and warrants that the proceeds of this Note shall be used solely for [DESCRIBE PURPOSE OF LOAN], and for no other purpose without the prior written consent of the Lender. The Borrower acknowledges that the Lender is relying on this representation in making this loan.

7.2 Financial Covenants

[IF APPLICABLE:] During the term of this Note, the Borrower shall:

(a) Maintain a minimum cash balance of [AMOUNT] at all times;

(b) Maintain a debt-to-equity ratio not exceeding [RATIO];

(d) Provide to the Lender, within [NUMBER] days after the end of each [PERIOD], financial statements including a balance sheet, income statement, and cash flow statement for such period;

(e) Provide to the Lender, within [NUMBER] days after the end of each fiscal year, annual financial statements [AUDITED/REVIEWED/COMPILED] by a certified public accountant acceptable to the Lender;

(f) Permit the Lender or its representatives to inspect the Borrower's books and records at any reasonable time upon reasonable notice; and

(g) Promptly notify the Lender of any material adverse change in the Borrower's financial condition or operations.

7.3 Conversion Rights

[IF APPLICABLE:] At any time [BEFORE/AFTER/ON] [CONVERSION DATE/EVENT], the Lender shall have the option, in its sole discretion, to convert all or any portion of the outstanding Principal Amount and accrued but unpaid interest under this Note into [TYPE OF EQUITY] of the Borrower at a conversion price of [CONVERSION PRICE] per [SHARE/UNIT], subject to adjustment as provided herein.

To exercise this conversion option, the Lender shall deliver to the Borrower a written notice of conversion specifying the amount to be converted and the date of conversion, which shall be at least [NUMBER] days after the date of such notice. Upon receipt of such notice, the Borrower shall issue to the Lender the appropriate number of [SHARES/UNITS] and, if the entire outstanding balance is not being converted, a new promissory note on the same terms as this Note for the unconverted balance.

In the event of any stock split, stock dividend, recapitalization, or similar event affecting the Borrower's equity securities, the conversion price shall be proportionately adjusted.

7.4 Subordination Terms

[IF APPLICABLE:] This Note and the indebtedness evidenced hereby are subordinate in right of payment to the prior payment in full of all of the Borrower's Senior Indebtedness. "Senior Indebtedness" means all indebtedness of the Borrower for borrowed money, whether outstanding on the date of execution of this Note or thereafter created, incurred, or assumed, unless such indebtedness expressly provides that it is not senior in right of payment to this Note.

The Borrower shall not make, and the Lender shall not accept, any payment under this Note if, at the time of such payment, the Borrower is in default in the payment of any Senior Indebtedness or if any event of default exists with respect to any Senior Indebtedness. If the Lender receives any payment that it is not entitled to receive under this subordination provision, it shall hold such payment in trust for the holders of Senior Indebtedness and shall promptly pay over such payment to such holders.

8. DOCUMENT FORMALITIES

8.1 Date of Execution

This Note is executed and delivered on the date first written above.

8.2 Witness Requirements

[IF APPLICABLE:] This Note must be signed in the presence of [NUMBER] witnesses, who shall also sign this Note to attest to the Borrower's signature.

8.3 Notarization Requirements

[IF APPLICABLE:] This Note must be acknowledged before a notary public or other officer authorized to take acknowledgments.

9. ENTIRE AGREEMENT

This Note constitutes the entire agreement between the Borrower and the Lender with respect to the subject matter hereof and supersedes all prior negotiations, understandings, and agreements between such parties, whether oral or written.

IN WITNESS WHEREOF, the Borrower has executed this Promissory Note as of the date first written above.

BORROWER:

[BORROWER NAME]

By: ________________________________ Name: [AUTHORIZED SIGNATORY NAME] Title: [TITLE]

[IF APPLICABLE:] GUARANTOR:

[GUARANTOR NAME]

WITNESSES:

Name: [WITNESS 1 NAME] Address: [WITNESS 1 ADDRESS]
Name: [WITNESS 2 NAME] Address: [WITNESS 2 ADDRESS]

[IF APPLICABLE:] NOTARY ACKNOWLEDGMENT:

STATE OF ________________ ) ) ss. COUNTY OF ______________ )

On this ____ day of ____________, [YEAR], before me personally appeared [BORROWER NAME/AUTHORIZED SIGNATORY], [IF ENTITY: the [TITLE] of [BORROWER ENTITY NAME]], known to me (or satisfactorily proven) to be the person whose name is subscribed to the within instrument, and acknowledged that [he/she] executed the same for the purposes therein contained.

IN WITNESS WHEREOF, I hereunto set my hand and official seal.

Notary Public My Commission Expires: ___________

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Introduction

Key Things to Know

Key Decisions

Minority or Disadvantaged Business Owner

Standard default remedies (acceleration of debt, recovery of collection costs)

Graduated remedies (grace periods, increased interest before acceleration)

Extensive remedies (confession of judgment, immediate seizure of collateral)

Allow prepayment at any time without penalty

Allow prepayment with a penalty (e.g., 3% of prepaid amount)

No prepayment allowed (loan must run full term)

Unsecured (no specific collateral)

Secured by business assets (equipment, inventory, accounts receivable)

Secured by personal assets (real estate, vehicles, investments)

Regular installment payments (equal monthly payments of principal and interest)

Interest-only payments with balloon payment at maturity

Custom payment schedule (seasonal or graduated payments)

Fixed interest rate (e.g., 5% per year)

Variable interest rate (tied to a benchmark like Prime Rate plus a margin)

Zero interest rate

First-time Small Business Owner

Allow prepayment at any time without penalty

Allow prepayment with a penalty (e.g., 3-6 months of interest)

No prepayment allowed for a fixed period (e.g., first year), then allowed with or without penalty

Standard remedies (acceleration of debt, collection of reasonable attorney fees)

Limited remedies (grace periods, opportunity to cure defaults before acceleration)

Extensive remedies (default interest rate, confession of judgment, immediate seizure of collateral)

Unsecured (no specific collateral)

Secured by business assets (equipment, inventory, accounts receivable)

Secured by personal assets (home, vehicle, investments)

Equal monthly installments (amortized payments of principal and interest)

Interest-only payments with a balloon payment at the end of the term

Lump sum payment of principal and interest at the end of the term

Fixed interest rate

Variable interest rate tied to a published index (e.g., Prime Rate plus a margin)

Zero interest rate

Established Small Business Owner Seeking Expansion Capital

Standard default provisions (missed payments, bankruptcy, breach of representations)

Expanded default provisions (includes change in business control, cross-defaults with other loans)

Limited default provisions with cure periods (grace periods to remedy defaults)

Allow prepayment at any time without penalty

Allow prepayment with a penalty (e.g., percentage of remaining balance or specified number of months' interest)

No prepayment allowed for a specified period (lockout period)

Secured loan (backed by specific business assets or property)

Unsecured loan (no specific collateral)

Personally guaranteed (business owner personally liable)

Regular installment payments (equal monthly payments of principal and interest)

Interest-only payments with balloon payment at maturity

Custom payment schedule (e.g., seasonal payments, graduated payments)

Fixed interest rate

Variable interest rate tied to a published index (e.g., Prime Rate, LIBOR, SOFR)

Zero interest rate

Minority or Women Business Owner (MWBE)

No prepayment penalty (can pay off loan early without additional cost)

Prepayment penalty during initial period only

Full prepayment penalty or interest guarantee

Standard default provisions with cure period

Strict default provisions with acceleration clause

Flexible default provisions with workout options

Unsecured promissory note (no collateral)

Secured promissory note with business assets as collateral

Secured promissory note with personal guarantee

Regular installment payments (equal monthly payments of principal and interest)

Interest-only payments with balloon payment at maturity

Custom payment schedule (e.g., seasonal payments, graduated payments)

Fixed interest rate

Variable interest rate tied to a reference rate (e.g., Prime Rate, LIBOR, SOFR)

Zero or below-market interest rate

Promissory Note Requirements

Lender's Information

Borrower's Information

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PROMISSORY NOTE

1. PARTIES

2. PROMISE TO PAY

3. LOAN TERMS

3.1 Principal Amount

3.2 Interest Rate

3.3 Term

3.4 Payment Schedule

3.5 Payment Method