Draft Promissory Note

Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 4,009 reviews

Jump to Section

Need help with a Promissory Note?

Post Project Now

Post Your Project (It's Free)

Get Bids to Compare

 Hire Your Lawyer

What Does It Mean to Draft a Promissory Note?

Drafting a promissory note means creating a legally enforceable written promise to repay a loan on a future date.

A promissory note is less formal than a loan agreement, so it has fewer terms and conditions. However, it is still a legally binding obligation to repay the debt to someone with a fixed or determinable amount of interest.

By repaying debt with a promissory note, you can repay what you borrow in smaller sums of money versus a lump sum. This makes it easier to return funds to someone without having all the cash upfront.

It’s helpful to think of a promissory note as the middle ground between an IOU and a formal loan agreement.

Here is an article that defines promissory notes.

Who Can Use a Promissory Note?

Anyone borrowing money from someone can use a promissory note to promise to repay their debt in the future. A promissory note legally binds the borrower to the lender, whether the lender is an individual or a company. Promissory notes can be used when borrowing a mortgage, taking out an auto loan, a student loan, or a personal loan.

Signing a promissory note is often the last step of the loan borrowing process. The lender will request the borrower to sign the note to solidify their agreement to repay their entire debt plus interest later.

The most significant difference between an IOU and a promissory note is that a promissory note contains similar elements to a formal loan agreement. These elements include:

  • The total amount of debt owed plus interest
  • The timeline
  • The terms of the repayment agreement

An IOU simply confirms that someone has a debt, but there is no legally enforceable timeframe for repayment.

Although a promissory note can be used in formal situations, it is not as common when borrowing large sums of money as a legal loan agreement. However, you may use a promissory note instead of an IOU if you were personally lending money to a friend or family member.

Here is an article about promissory notes vs. loan agreements.

Meet some lawyers on our platform

Daniel R.

9 projects on CC
View Profile

Justin K.

3 projects on CC
View Profile

Matthew S.

2 projects on CC
View Profile

Don G.

27 projects on CC
View Profile

What Should Be Included in a Promissory Note?

At the minimum, a promissory note should include the following:

  • The borrower and lender the names
  • The amount of money being borrowed
  • The interest rate
  • The agreed-upon terms of repayment

A promissory note should also include the date the loan is dispersed and a timetable for repayment. There should also be a final date of payment, where all owed debt plus accrued interest is due to the lender.

Below are some other features that you made include in a promissory note:

  • Penalties for late payment
  • Any collateral that the borrower has offered
  • Mutually agreed-upon payment methods
  • Consequences of defaulting on the loan

The details included in your promissory note depend on what kind of loan you're borrowing. For example, if you take out a mortgage and sign a promissory note from your lender, they will have a lien against your house until you pay off the mortgage.

On the other hand, if you simply borrow a lump sum from a friend or relative for personal reasons, they may not include full details about why you borrowed the money. The promissory note, in this case, simply assures them that you will repay the debt you owe in the future.

The most important element to include in any promissory note is the date by which the borrower must fully repay their debt. Without any date, it will be difficult for a court to legally enforce anyone to pay the money within a certain timeframe.

Here is an article by RocketHQ to read more about different types of promissory notes.

How Do You Draft a Promissory Note?

Promissory notes have different legalities depending on the state you live in. However, all promissory notes must include an unconditional promise to repay debt, due dates and payment methods, and a total amount owed, including the principal balance of the loan and any interest.

A lawyer can also help you draft a legally binding promissory note. Working with an attorney is one of the best ways to ensure that your promissory note contains all the necessary elements and provides the greatest level of legal security.

Here is an article by ContractsCounsel with eight easy steps to follow when writing a promissory note.

Is a Promissory Note a Loan?

No, a promissory note is not a loan or a loan agreement. A loan agreement is a more formal contract between borrowers and lenders, and they have more terms and conditions and legal consequences than a promissory note.

Loan agreements are more comprehensive and often used when people borrow larger sums of money. Unsecured loan agreements do not allow the lender to seize any of your assets if you default on payment secured loan agreement; secured loans will enable the lender to seize collateral or assets they have a lien against in the event of non-payment.

Promissory notes between friends and family offer security that the borrower will repay their debt at a certain date. However, they still require an interest rate and deadlines for repayment.

Here is an article that explains when to use a promissory note.

What Makes a Promissory Note Invalid?

Like any legal document, promissory notes can also be invalidated under certain conditions. Below are the five most common reasons why promissory notes are deemed invalid in court.

Make sure you take steps to avoid any of these mistakes when drafting your promissory note.

  1. Incomplete signatures. Any legally binding contract or agreement must have signatures from both parties. You must use your legal names and ensure that the signatures are complete and legible.
  2. Missing dates. The primary purpose of a promissory note is to ensure a lender receives the money they loaned the borrower by a set date. Without any due days or deadlines for repayment, a promissory note is, at most, an IOU.
  3. No interest rates. Even personal loans require a minimum interest rate. Without any interest, the money loaned may not be considered a legal loan under your state laws—section 7872 of the Internal Revenue Code gift loans under $10,000 between individuals from minimum interest rates. If used for business purposes, they must pay interest.
  4. No original copy. You may make changes to your promissory note over the loan term. In that case, you will need a copy of the original version of the note. Amended versions of legal documents are generally only considered valid if there is an original copy to compare them to.
  5. Unreasonable terms. You cannot enforce unrealistic or exploitative terms on the other party. Legal consultation with a promissory note attorney can help you determine what is reasonable or unreasonable to include in a promissory note.

Learn how to write a promissory note from ContractsCounsel in nine easy steps.

Post a project in ContractsCounsel’s marketplace to receive flat fee bids from lawyers for your project. All lawyers have been vetted by our team and peer-reviewed by our customers for you to explore before hiring.

How ContractsCounsel Works
Hiring a lawyer on ContractsCounsel is easy, transparent and affordable.
1. Post a Free Project
Complete our 4-step process to provide info on what you need done.
2. Get Bids to Review
Receive flat-fee bids from lawyers in our marketplace to compare.
3. Start Your Project
Securely pay to start working with the lawyer you select.

Meet some of our Lawyers

Rosario A. on ContractsCounsel
View Rosario
5.0 (1)
Member Since:
August 24, 2020

Rosario A.

Trademark Attorney
Free Consultation
Get Free Proposal
Seattle, WA
3 Yrs Experience
Licensed in WA
University of Washington

I'm a Washington-licensed lawyer specializing in trademark practice and with an extensive trademark education and academic background. I currently work with domestic and international businesses seeking trademark protection in the U.S. by conducting trademark searches, providing legal advice, submitting USPTO applications, and preparing responses to office actions. I'm passionate about trademark law and always looking forward to helping small and medium businesses promote their value by having a registered federal trademark. If you have questions or concerns about trademark/copyright/IP licensing and require legal advice, feel free to contact me so we can have a first chat.

Ashley H. on ContractsCounsel
View Ashley
5.0 (24)
Member Since:
August 24, 2020

Ashley H.

Attorney at Law
Free Consultation
Get Free Proposal
Los Angeles, CA
12 Yrs Experience
Licensed in CA
St. Louis University School of Law

I have 10 years experience providing general counsel, in the form practical and timely legal advice, under strict deadlines to individuals and various business unit stakeholders, balancing commercial needs with legal concerns at large corporations and start-ups. I am skilled at reviewing, analyzing, drafting and negotiating commercial and government contracts globally for the procurement and sale of services and goods. I also help clients ensure compliance with regulations (including data privacy), laws and contractual obligations and protect, enforce and exploit intellectual property rights and support in the development of IP strategy. I am a Certified Information Privacy Professional/United States (CIPP/US) licensed by the IAPP - International Association of Privacy Professionals.

Anatalia S. on ContractsCounsel
View Anatalia
4.8 (5)
Member Since:
August 26, 2020
Blake L. on ContractsCounsel
View Blake
4.8 (2)
Member Since:
September 22, 2020

Blake L.

Attorney
Free Consultation
Get Free Proposal
Farmington Hills, MI
28 Yrs Experience
Licensed in MI
Wayne State University Law School

I am a sole practitioner who has been in practice for over 25 years. I have represented many small businesses during this time. Let me bring my expertise to your business.

Diane D. on ContractsCounsel
View Diane
4.7 (2)
Member Since:
August 25, 2020

Diane D.

Contract Attorney
Free Consultation
Get Free Proposal
Fort Lauderdale, FL
20 Yrs Experience
Licensed in FL
Nova Southeastern University

Over 15 year experience drafting, reviewing and negotiating contracts both as in-house counsel and in law firms, including my own law firm.

Jeffrey P. on ContractsCounsel
View Jeffrey
Member Since:
August 24, 2020

Jeffrey P.

Member
Free Consultation
Get Free Proposal
Deerfield Beach, FL
14 Yrs Experience
Licensed in FL, NY
Florida State University College of Law

Mr. Pomeranz serves as the principal of Pomeranz Law PLLC, a boutique law firm representing clients across myriad industries and verticals. Before founding the firm, Mr. Pomeranz served as Senior Vice President, Legal & Compliance and General Counsel of Mortgage Connect, LP in 2017. Mr. Pomeranz also served as Counsel, Transactions for Altisource Portfolio Solutions S.A. (NASDAQ: ASPS) beginning in 2013, and was based in the company’s C-Suite in Luxembourg City, Luxembourg. Mr. Pomeranz began his career with Mainline Information Systems, Inc. as an in-house attorney.

Rinky P. on ContractsCounsel
View Rinky
Member Since:
August 25, 2020

Rinky P.

Managing Attorney
Free Consultation
Get Free Proposal
Tampa, FL
30 Yrs Experience
Licensed in CA, FL, TX
University of Minnesota

Rinky S. Parwani began her career practicing law in Beverly Hills, California handling high profile complex litigation and entertainment law matters. Later, her practice turned transactional to Lake Tahoe, California with a focus on business startups, trademarks, real estate resort development and government law. After leaving California, she also served as in-house counsel for a major lending corporation headquartered in Des Moines, Iowa as well as a Senior Vice President of Compliance for a fortune 500 mortgage operation in Dallas, Texas prior to opening Parwani Law, P.A. in Tampa, Florida. She has represented various sophisticated individual, government and corporate clients and counseled in a variety of litigation and corporate matters throughout her career. Ms. Parwani also has prior experience with state and federal consumer lending laws for unsecured credit cards, revolving credit, secured loans, retail credit, sales finance and mortgage loans. She also has served as a special magistrate and legal counsel for numerous Florida County Value Adjustment Boards. Her practice varies significantly from unique federal and state litigation cases to transactional matters. Born and raised in Des Moines, Iowa, Ms. Parwani worked in private accounting for several years prior to law school. Her background includes a Certified Public Accountant (CPA) certificate from Iowa (currently the license is inactive) and a Certified Management Accountant (CMA) designation (currently the designation is inactive). Ms. Parwani or the firm is currently a member of the following organizations: Hillsborough County Bar Association, American Bar Association, Tampa Bay Bankruptcy Bar Association, National Association of Consumer Bankruptcy Attorneys, and the American Immigration Lawyers Association. She is a Fellow of the American Bar Association. Ms. Parwani is a frequent volunteer for Fox Channel 13 Tampa Bay Ask-A-Lawyer. She has published an article entitled "Advising Your Client in Foreclosure" in the Stetson Law Review, Volume 41, No. 3, Spring 2012 Foreclosure Symposium Edition. She is a frequent continuing legal education speaker and has also taught bankruptcy seminars for the American Bar Association and Amstar Litigation. She was commissioned by the Governor of Kentucky as a Kentucky Colonel. In addition, she teaches Immigration Law, Bankruptcy Law and Legal Research and Writing as an adjunct faculty instructor at the Hillsborough Community College Ybor campus in the paralegal studies program.

Nicole R. on ContractsCounsel
View Nicole
Member Since:
September 2, 2020

Nicole R.

Attorney / Owner
Free Consultation
Get Free Proposal
Mount Dora, FL
11 Yrs Experience
Licensed in FL
University of Miami School of Law

Full-service boutique law firm providing personalized services in business law, trademarks, and real estate closings/title work.

Maury B. on ContractsCounsel
View Maury
Member Since:
September 2, 2020

Maury B.

Senior Counsel
Free Consultation
Get Free Proposal
Minneapolis, MN
32 Yrs Experience
Licensed in MN, WI
Mitchell Hamline School of Law

Respected, driven, ethical, and high energy legal and business professional with strong focus on litigation, contracts and compliance issues. Critical management experience includes client development, developing core initiatives, and forecasting risk in major corporations. Strong legal research, analytical and problem solving skills with demonstrated adaptability in a multifaceted legal practice including delivering high value results in a Fortune 10 environment. Core competencies include: Tactical and strategic legal direction and support to clients which includes contract negotiation, drafting and review, business planning, and a passion for relationship management. Excellent legal research, writing, analytical and problem solving skills including legal training and compliance with regulatory requirements and corporate policies. Coordinates with in-house legal and business resources for team building with excellent verbal communication skills, coaching, and leadership.

Diana M. on ContractsCounsel
View Diana
Member Since:
September 22, 2020

Diana M.

Patent Attorney
Free Consultation
Get Free Proposal
Boca Raton, FL
11 Yrs Experience
Licensed in FL
Florida Coastal School of Law

Diana is a registered patent attorney and licensed to practice law in Florida and in federal courts in Florida and in Texas. For nearly a decade, Diana has been known as the go-to brand builder, business protector, and rights negotiator. Diana works with individual inventors, startups, and small to medium-sized closely held business entities to build, protect, and leverage a robust intellectual property portfolio comprising patents, trademarks, copyrights, trade dress, and trade secrets.

Brandon L. on ContractsCounsel
View Brandon
Member Since:
October 1, 2020

Brandon L.

Managing Partner, Attorney
Free Consultation
Get Free Proposal
Dallas-Fort Worth
12 Yrs Experience
Licensed in TX
Juris Doctor – Pepperdine University School of Law – Malibu, California

Brandon is a Texas Super Lawyer®, meaning he is among the top 2.5% of attorneys in his state. He has designed his practice to provide a unique ecosystem of legal support services to business and entrepreneurs, derived from his background as a federal district law clerk, published biochemist, and industry lecturer. Brandon is fluent in Spanish, an Eagle Scout, and actively involved with the youth in his community. He loves advocating for his clients and thinks he may never choose to retire.

Find the best lawyer for your project

Browse Lawyers Now

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call