Promissory notes are simple documents that are utilized in lending situations. While the notes are often considered to be a quick and easy way to prepare a written agreement surrounding a personal loan, this approach can also be used in commercial settings.
With any application, it is important to make sure the promissory note contains all the data relevant to establishing the terms and conditions surrounding the loan. By including basic information such as the names and contact information of the parties involved, the amount of the loan, and even the repayment terms the two parties have agreed upon, you will have a document that is legally binding and will hold up in a court of law.
Identify the Parties
The preface of the promissory note should establish the identities of the two parties who are entering into the lending arrangement. This is done by providing the full and legal name of the lender. Along with the name, the mailing address for the lender should also be included. You can even add details such as a telephone number and an email address. If the mailing address is different from the lender’s physical address, it helps to include the latter information as well.
For the debtor or borrower, the same scope of information should be included. You may want to augment this data with a couple of other pieces of information. Assuming the debtor has a job, it never hurts to also list his or her employer and work number in the detail.
Assuming the promissory note is between two individuals, referencing their Social Security numbers is often a good idea. That number can be used to remove all doubts about the identity if the debtor defaults and the lender chooses to take legal action in an effort to recover the funds.
Describe the Transaction
Always include the specifics involved with the promissory note. The exact amount that is being loaned to the debtor and the date the transaction took place are a must. In the terms of the promissory note, you should also specify the date that the note is to be settled. For example, if you loan a friend $1,000 on May 25, 2014, and provide one year for the note to be settled in full, you will make sure to include a specific settlement date of May 25, 2015, in the description of the transaction.
Interest and Penalties
Don’t forget to include a section that details the amount of interest that will apply to the loan. You may decide to apply a flat rate of interest for the duration of the loan, such as five percent. Specify that this would mean on the loan of $1,000, the debtor would repay a total of $1,050 by the agreed upon settlement date.
In the event the debtor is late, it helps to have some provisions in the promissory note that entitles the lender to late fees. The flat rate or the percentage of the late fees and how often they will be applied should be stated. For example, you may include a provision that allows you to collect an additional $10.00 for every month the debt remains outstanding after the settlement date.
The Jurisdiction for the Note
One final point to address in the body of the promissory note is which court of jurisdiction will review the matter if there is a default. When both parties live in the same area, this will be a simple process. When one party lives in another state, make sure to specify the jurisdiction where the lender resides. This will keep things easier to manage if legal action does become necessary.
