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.
Key Things to Know
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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 before you file
Before you file a Promissory Note in Washington Dc, a few decisions shape the document: which option to choose and what each one means. The Promissory Note guide walks through them.
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Washington Dc Requirements for Promissory Note
The interest rate must comply with DC's usury laws, which cap interest at 24% per annum for written agreements. Exceeding this rate may render the interest provisions unenforceable or subject to penalties.
Legal action to enforce the promissory note must be commenced within 3 years from the date the cause of action accrues (typically when default occurs).
For consumer loans, the note must include clear disclosures of APR, finance charges, amount financed, and total payments as required by federal law.
The promissory note and underlying loan agreement must not discriminate on the basis of race, color, religion, national origin, sex, marital status, age, or receipt of public assistance.
To be negotiable, the note must be in writing, signed by the maker, contain an unconditional promise to pay a fixed amount of money, be payable on demand or at a definite time, and be payable to order or bearer.
The note must clearly define what constitutes a default and specify the consequences, including acceleration of the debt, late fees, and collection procedures.
The note must comply with DC's Consumer Protection Procedures Act, which prohibits unfair or deceptive trade practices in consumer transactions.
If executed electronically, the note must comply with federal and DC laws regarding electronic signatures and records.
For consumer loans, the note must disclose whether the borrower has the right to prepay the loan without penalty and any conditions for prepayment.
Late fees must be reasonable and clearly disclosed in the note. DC courts may scrutinize excessive late fees as potential penalties rather than liquidated damages.
Provisions for recovery of attorney's fees in the event of default must be reciprocal, allowing either party to recover fees if they prevail in litigation.
If the note specifies governing law other than DC, it must have a reasonable relationship to the chosen jurisdiction and not violate DC public policy.
Collection efforts related to the note must comply with federal restrictions on harassment, false representations, and unfair practices.
For borrowers who are servicemembers, the note must comply with interest rate caps (36% Military APR) and other protections under federal law.
While not strictly required for promissory notes in DC, notarization adds a layer of authentication and may be necessary if the note is secured by real property.
If the note is secured by personal property, it must comply with UCC Article 9 requirements for describing collateral and perfecting security interests.
If the note is for a residential mortgage loan, the originator must be properly licensed and the note must comply with additional disclosure requirements.
For small business loans, the note should include clear disclosures of APR, fees, prepayment policies, and default consequences as increasingly required by state and federal regulators.
The note should acknowledge that enforcement may be limited by federal bankruptcy laws and cannot include provisions attempting to circumvent bankruptcy protections.
DC generally disfavors confession of judgment clauses that waive the borrower's right to notice and hearing before judgment. Such provisions may be unenforceable, especially in consumer transactions.
Frequently Asked Questions
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.
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.
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.
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.
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.
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.
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.
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.
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.