A promissory note is a written promise to repay a loan — the legal version of an IOU, but one a court will actually enforce. It protects both sides: the borrower knows exactly what's owed and when, and the lender can collect if things go sideways.
When you need one
- Lending to family or friends (the fastest way to destroy a relationship is an unwritten loan).
- Loans between business partners or from your business.
- Personal or small-business financing without a bank.
- Any informal loan you want to actually get back.
The terms that matter
- Principal — the amount loaned.
- Interest rate + type — simple vs. compound, and the rate itself.
- Repayment schedule — installment (with payment amount and number of payments), lump sum, on demand, or balloon.
- Maturity date — when the loan is fully due.
- Late fees and grace period — what happens when a payment is late.
- Prepayment — can the borrower pay early without penalty?
- Collateral — what secures the loan, if anything (the difference between secured and unsecured).
Default and acceleration
The note should state what happens if the borrower stops paying — and include an acceleration clause that lets you demand the full remaining balance after a default. This is what turns a polite reminder into an enforceable claim.
The usury limit
Every state caps the interest you can charge (the usury limit). Charge more and the note can be unenforceable — or worse, the excess interest can be stripped. A handful of states are notably strict. Your drafter should flag the cap for your state.
Make it legal
- Both parties sign (e-signature is fine).
- The lender keeps the original; the borrower gets a copy.
- If the note is secured, record any UCC-1 / lien where applicable.
Draft a court-enforceable promissory note with your state's usury rules applied in about ten minutes.
Related promissory note variants
- [Installment Promissory Note](/legal-documents/promissory-note-installment) — structured repayment over time with fixed installment amounts, a fixed end date, and late-fee provisions.
- [Balloon Promissory Note](/legal-documents/promissory-note-balloon) — interest-only payments with the full principal due at the end, common in real estate and bridge financing.
- [Secured Promissory Note](/legal-documents/promissory-note-secured) — backed by collateral that the lender can seize on default, providing stronger protection for the lender.