What is a Promissory Note?

What is a Promissory Note?

 

A promissory note is a signed document, which covers a written promise by one party to pay another party a specific amount of money. This legally binding promise of payment comprises all the terms relating to the acknowledgment, such as the amount, interest rate, maturity date, etc.

 

Even though financial organisations may give these promissory notes, they are basically debt instruments, which permit businesses and people to obtain financing from a source other than a bank. This source can be a person or an organisation ready to convey the note and provide the financing under the given terms. This kind of note is used for student loans, mortgages, business loans, car loans, and personal loans. In effect promissory notes will empower a party to be a lender. For example, although not in every case, you may be requested to sign a promissory note to take out a small personal loan.

 

Benefits of a Promissory Note

 

Flexibility

The main advantage of a promissory note is it provides both parties flexibility in a contract. It allows you state whether payments will be made on demand, in installments, or at a future date. This flexibility allows you state the terms of the loan as per your needs or what is good for your business.

 

Brief and less cost

A Promissory Note does not have numerous pages and has and makes it easy to read and less complicated to understand. Not only this, due to the lesser number of pages, the legal costs of preparing a promissory note will usually be much less than the cost involved in preparing a full blown legal loan agreement. Also, there no requirement to have the promissory note notarized.

 

Convertible

If your business is a separate legal entity, you can attract prospective stakeholders with a convertible promissory note. Potential shareholders may receive a convertible promissory note if converting to preferred stock in your company at a later date.

 

Contact us for more information regarding promissory notes and we will be happy to help you!

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