What is Promissory Note Drafting? A promissory note is a written document used by a borrower and lender. It explains that a borrower has to pay the lender an amount of money by a specific deadline.
Although it seems straightforward, it is a legally enforceable document that needs to include clear information. There are also important steps to take to make it legally valid.
Read the rest of this article to learn what should be included in a promissory note and how a lawyer can help you to draft one that’s professional and legal.
What are Secured and Unsecured Promissory Notes?
A promissory note can be secured or unsecured. Here’s the difference between them.
- Secured promissory note: this note explains that collateral is used for the debt. For example, property can be used as collateral, which the lender can take if the debt remains unsettled.
- Unsecured promissory note: this doesn’t involve any collateral, so it makes sense to call it unsecured. If it happens that the borrower doesn’t settle the amount owing on the loan, the lender can make use of debt collection.
What’s Included in a Promissory Note?
A promissory note should include the following essential components.
- Parties. Full names and addresses of parties involved in the transaction (i.e. the lender and borrower) will be included.
- Dates. The date when the promissory note is in effect and when the note ends must be included. It’s also good to state the date when the first payment will be due.
- Principal amount. This is the specific amount that is being borrowed.
- Interest. This section of the note includes the rate of interest which will be used and how it is calculated.
- Repayment. How the loan will be repaid will be clarified, including details about installments and payment schedules.
- Maturity date. This is the date by which the loan must be paid off.
- Default terms. If the borrower doesn’t pay the amount of debt by the maturity date, there will be penalties or other consequences.
- Signatures. Both parties will sign the promissory note to make it legally valid.
What Makes a Promissory Note Legally Valid?
When drafting a promissory note, you must take care to ensure that it will remain legally enforceable in court.
The note must be signed by both parties to be legally binding. In some cases, if the lender isn’t required to sign the document, there could be rules that the borrower has to sign the promissory note with a notary present.
Securing the promissory note with collateral can make it more legally enforceable because there’s a clear, direct consequence of nonpayment.
The note must also be drafted clearly and with specific details to increase its validity.
What are Tips for Promissory Note Drafting?
When drafting a promissory note, you should make sure to include the following to keep it legally sound and avoid disputes.
Keep it Fair
Check your state laws regarding what’s required in the promissory note so that it will be valid. In many states, how much interest that can be charged is limited. If you go against this and make the interest rate too high, it could make the note invalid.
Include Nonpayment Consequences
To make the promissory note comprehensive, it should state what happens if the borrower doesn’t repay the amount to the lender. This ensures that the lender is adequately protected to regain what’s owing.
Keep a Record of the Promissory Note
It’s always a good idea to keep a signed copy of the note for your records should you require this at a later stage.
Be Careful About Using Templates
Although promissory note templates you can purchase online can make the process of drafting this document simple and convenient, generic templates are risky because they might not be drafted by a legal professional.
On ContractsCounsel, one of the largest online legal marketplaces where clients can connect with vetted lawyers, you can purchase a lawyer-drafted promissory note. This is customizable so that you can tailor it to your specific transaction and requirements.
When purchasing it from the platform, you can also request a legal chat with the lawyer who drafted it should you have any queries.
How Can a Lawyer Help You with Promissory Note Drafting?
Although you don’t always need to hire a lawyer to draft your promissory note, it’s advisable to ensure it’s legal and transparent. Legal guidance is especially important if you’re dealing with a significant debt amount or there’s more than one borrower. Working with a lawyer will give you peace of mind that you’re avoiding future disputes.
Here is how a lawyer can help you with the drafting process:
- They’ll check that the promissory note contents are aligned with all federal and state laws.
- They’ll outline all repayment terms so that there’s no misleading wording that can result in a lack of payment.
- They’ll consider the terms of your agreement to ensure that the promissory note reflects it properly.
- They’ll use clear, factual language that isn’t complex or legally dense for clarity.
Where to Find a Lawyer for Promissory Note Drafting
Once you’ve decided you want to use a lawyer to draft your promissory note, you might wonder where to find a reputable one. On ContractsCounsel, the process is easier than cold-calling traditional law firms. You can post your request for a draft on the platform.
Here are the easy steps to follow:
1. Go to the ContractsCounsel marketplace, where you can post your project for free. Include a few details, such as what the promissory note is for, so you can be directed to the best lawyer.
2. Wait for lawyer bids. You’ll receive multiple bids from lawyers directly on the platform who have the experience to assist you.
3. Once you receive the lawyer bids, review the lawyers' profiles. ContractsCounsel provides a range of information about lawyers on their platform, such as their location, client ratings, years of experience, and field of expertise.
4. Connect with a lawyer you think is best suited to your requirements and hire them to draft your promissory note.
