ContractsCounsel Logo
Home Types of Contracts Secured Promissory Note

Jump to Section

ContractsCounsel has assisted 158 clients with secured promissory notes and maintains a network of 113 financial lawyers available daily. These lawyers collectively have 12 reviews to help you choose the best lawyer for your needs.

A secured promissory note is a legal document that includes collateral, ensuring the lender can claim the assets of the borrower if they fail to repay the loan. Unlike an unsecured promissory note, a secured promissory note incorporates extra provisions to safeguard the lender's interests by securing the loan with collateral. This blog post will help you understand the concept of secured promissory notes in detail.

Essential Elements of a Secured Promissory Note

Some key elements in a secured promissory note are as follows:

  • Identifying the Parties: One key element of a secured promissory note involves accurately identifying the parties concerned. The promissory note should explicitly mention the addresses, legal names, and contact details of both the borrower and the lender. These details are vital in establishing identities and fostering communication throughout the loan duration.
  • Explaining Loan Amount and Provisions: A secured promissory note must define the principal loan amount offered to the borrower and summarize the repayment provisions, including the payment schedule, interest rate, and any relevant fees. Clearly explaining these aspects guarantees that both parties are well-informed about their financial obligations and enables them to plan accordingly.
  • Describing the Collateral: A secured promissory note describes the collateral used to secure the loan. Collateral acts as a guarantee for the lender and provides recourse in case of default. The note should identify the collateral, describe its condition, and include valuation reports. Documenting this information safeguards the lender's interest by ensuring adequate collateral protection.
  • Explaining Default and Remedies: A secured promissory note should outline the consequences of borrower default to safeguard the lender's interests. This section should clearly define default events, such as missed payments or violations of the agreed-upon terms, and describe the available remedies for the lender. These remedies may include accelerating the loan, collateral repossession, or legal action. Precisely defining these remedies helps both parties understand the consequences of non-compliance and establishes a framework for dispute resolution.
  • Governing Law and Jurisdiction: Including a clause specifying the governing law and jurisdiction of the promissory note is of utmost importance. This clause establishes the legal framework for resolving any disputes that may arise. It prevents confusion and streamlines the legal process if litigation becomes necessary. Identifying the specific state or country laws that apply to the promissory note ensures consistent interpretation and enforcement.
  • Ensuring Signatures and Execution: The secured promissory note must be executed and dated by both the borrower and the lender. Each party's signature indicates their understanding of the terms and conditions summarized within the document. Additionally, including prerequisites for witnesses or notarization can further authenticate the signatures.

Benefits of Secured Promissory Notes

Below are the various benefits of using a secured promissory note.

  • Safeguarding the Assets: Secured promissory notes offer an extra protection layer for lenders compared to unsecured notes. Moreover, if the borrower defaults, lenders gain legal rights over the collateral, such as real estate, vehicles, or valuable assets. This provision ensures lenders can recover their investments, thus reducing lending risks.
  • Mitigating Default Risks: Secured promissory notes minimize the lenders' default risk. If borrowers fail to repay the loan as agreed, lenders can seize the collateral provided and recoup the outstanding amount. This collateral acts as a safety net, protecting the lender's investment.
  • Increasing the Borrowing Capacity: Secured promissory notes give borrowers greater borrowing power. Lenders are willing to offer more loan amounts and favorable terms. Collateral provides lenders with a sense of security, reducing perceived lending risks. Borrowers can access larger sums for purposes like starting a business, financing education or purchasing property.
  • Ensuring Beneficial Interest Rates: Lenders offering secured promissory notes provide more favorable interest rates than unsecured loans. The presence of collateral lowers lending risks, enabling lenders to offer lower interest rates as an incentive. It makes secured promissory notes an attractive option for borrowers seeking lower-cost financing, saving money throughout the loan's duration.
  • Offering Flexibility: Secured promissory notes allow borrowers flexibility in selecting collateral to secure the loan. Collateral can include tangible assets like real estate, vehicles, or valuable personal possessions. The choice of collateral depends on the loan's nature and both parties' preferences. This flexibility enables borrowers to leverage existing assets for financing without selling or liquidating them.
  • Providing Transparent Terms and Conditions: Secured promissory notes ensure a clear understanding of loan terms and conditions for lenders and borrowers. These notes outline the loan amount, interest rate, repayment schedule, and collateral details. This transparency establishes a solid foundation for a mutually beneficial relationship between the two parties and reduces the likelihood of disputes or misunderstandings.
Meet some lawyers on our platform

Faryal A.

205 projects on CC
CC verified
View Profile

Brian S.

16 projects on CC
CC verified
View Profile

Danny J.

13 projects on CC
CC verified
View Profile

Ryenne S.

671 projects on CC
CC verified
View Profile

Key Terms for Secured Promissory Notes

  • Collateral: Refers to an asset or property used as a guarantee by a borrower to secure a loan or debt.
  • Lender: The lender is the person or company that offers a loan or credit to the borrower.
  • Borrower: The borrower is the individual or entity receiving the loan or credit from the lender. The borrower consents to settle the loan amount within the defined terms, including any interest or fees summarized in the secured promissory note.
  • Principal Amount: The principal amount is the sum the borrower must repay the lender, excluding any interest or extra expenses.
  • Interest Rate: The interest rate is the portion the lender charges on the overdue loan amount. It is generally computed annually and serves as a charge to the borrower for borrowing the accounts.
  • Maturity Date: The maturity date is the deadline by which the borrower must fully settle the loan, including any remaining principal sum and accrued interest. Failure to fulfill this deadline may lead to fines or legal claims by the lender.
  • Default: Default occurs when the borrower fails to meet the obligations stated in the secured promissory note. In such cases, the lender may use their rights to the collateral and take legal action to recover the outstanding amount.
  • Guarantor: A guarantor is a third party responsible for loan repayment if the borrower cannot fulfill their obligations.
  • Acceleration Clause: An acceleration clause is a provision in a secured promissory note that authorizes the lender to mandate prompt repayment of the entire outstanding loan amount if the borrower violates specific prerequisites or defaults on the loan.
  • Security Agreement: A security agreement is a separate legal document that outlines the precise details of the collateral pledged by the borrower to secure the loan. It specifies the lenders' and borrowers' rights and responsibilities regarding the collateral.
  • UCC-1 Financing Statement: A UCC-1 financing statement is a document registered with the applicable government agency to create a public record of the lender's security interest in the collateral. This statement helps specify the priority of the lender's share on the collateral in case of default or bankruptcy.

Final Thoughts on Secured Promissory Notes

Secured promissory notes are lucrative for lenders and borrowers, promoting economic security and trust in lending relationships. Furthermore, these notes enhance the odds of successful loan transactions by providing a legal framework for loan contracts and collateral security. Nevertheless, both parties should carefully evaluate the terms and collateral sum and seek professional advice to ensure a fair and transparent deal. With proper understanding and execution, secured promissory notes can promote mutually advantageous financial transactions while minimizing possible risks.

If you want free pricing proposals from vetted lawyers that are 60% less than typical law firms, Click here to get started. By comparing multiple proposals for free, you can save the time and stress of finding a quality lawyer for your business needs.


ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.


Need help with a Secured Promissory Note?

Create a free project posting
Clients Rate Lawyers 4.9 Stars
based on 11,549 reviews

Meet some of our Secured Promissory Note Lawyers

Justin A. on ContractsCounsel
View Justin
5.0 (10)
Member Since:
July 7, 2021

Justin A.

Partner
Free Consultation
Seattle, WA
7 Yrs Experience
Licensed in NY, WA
The University of Chicago Law School

I am a lawyer who helps small businesses, nonprofits, and startups with a wide variety of agreements, corporate formation, and corporate governance. ​ I earned my BA from Tulane University and my JD from the University of Chicago Law School. Before starting my own practice, I worked at an international law firm in New York City. ​ Outside of work, I am on the board of the nonprofit Seattle REconomy (which runs the NE Seattle and Shoreline tool libraries) and I enjoy gardening, baking bread, and outdoor activities with my spouse and two dogs.

George O. on ContractsCounsel
View George
4.9 (5)
Member Since:
November 2, 2020

George O.

Managing Attorney
Free Consultation
Houston, Texas
17 Yrs Experience
Licensed in TX
South Texas College of Law

George Oggero is a down-to-earth lawyer who understands that his clients are human beings. He is a lifelong Houston resident. He graduated from St. Thomas High School and then Texas A&M University. He obtained his Doctor of Jurisprudence from South Texas College of Law in 2007. He is experienced in real estate, criminal defense, civil/commercial matters, personal, injury, business matters, general counsel on-demand, and litigation.

Pura R. on ContractsCounsel
View Pura
5.0 (23)
Member Since:
July 22, 2020

Pura R.

Healthcare Law and Employment Expert
Free Consultation
Miami, FL
14 Yrs Experience
Licensed in FL
Nova Southeastern University

Pura Rodriguez, JD, MBA is the President and Managing Partner of A Physician’s Firm, based in Miami. She represents healthcare providers from different specialties in a broad range of issues, including contract review, business planning and transactions, mergers and acquisitions, vendor and contract disputes, risk management, fraud and abuse compliance (Anti-Kickback Statute and Stark), HIPAA compliance, medical staff credentialing, employment law, and federal and state regulations. She also assists providers in planning their estates, protecting their assets, and work visa requirements.

Eric M. on ContractsCounsel
View Eric
5.0 (3)
Member Since:
July 25, 2020

Eric M.

Lawyer
Free Consultation
Pembroke Pines, FL
16 Yrs Experience
Licensed in FL, TX
University of Baltimore

Experienced and business-oriented attorney with a great depth of contract experience including vendor contracts, service contracts, employment, licenses, operating agreements and other corporate compliance documents.

Jaclyn I. on ContractsCounsel
View Jaclyn
Member Since:
September 10, 2020

Jaclyn I.

Attorney
Free Consultation
New York, NY
14 Yrs Experience
Licensed in NJ, NY
Hofstra University, Maurice A. Deane School of Law (J.D.)

Jaclyn is an experienced intellectual property and transactional attorney residing and working in NYC, and serving clients throughout the United States and internationally. She brings a targeted breadth of knowledge in intellectual property law, having years of experience working within the media, theater, PR and communications industries, and having represented clients in the music, entertainment, fashion, event production, digital media, tech, food/beverage, consumer goods, and beauty industries. She is an expert in trademark, copyright, and complex media and entertainment law matters. Jaclyn also taught as an Adjunct Professor at Cardozo School of Law, having developed and instructed the school’s first Trademark Practicum course for international students. In her spare time, Jaclyn’s passion for theater and love for NYC keeps her exploring the boundless creativity in the world’s greatest city!

Yoko T. on ContractsCounsel
View Yoko
Member Since:
July 22, 2020

Yoko T.

Principal
Free Consultation
Minnesota
5 Yrs Experience
Licensed in MN
Lewis & Clark Law School

A bilingual attorney graduated from J.D. with a C.P.A. license, an M.B.A. degree, and nearly ten years of experience in the cross-border tax field.

Find the best lawyer for your project

Browse Lawyers Now

Quick, user friendly and one of the better ways I've come across to get ahold of lawyers willing to take new clients.

View Trustpilot Review

Need help with a Secured Promissory Note?

Create a free project posting
Clients Rate Lawyers 4.9 Stars
based on 11,549 reviews
Financial lawyers by top cities
See All Financial Lawyers
Secured Promissory Note lawyers by city
See All Secured Promissory Note Lawyers

ContractsCounsel User

Recent Project:
Draft Template of Promissory Note - and provide consultation and review
Location: Texas
Turnaround: Over a week
Service: Drafting
Doc Type: Promissory Note Agreement
Number of Bids: 5
Bid Range: $495 - $5,000

ContractsCounsel User

Recent Project:
Promissory Note review
Location: California
Turnaround: A week
Service: Contract Review
Doc Type: Promissory Note Agreement
Page Count: 8
Number of Bids: 2
Bid Range: $800 - $850
User Feedback:
M. Park was very responsive over email. I got good advice regarding my project.

Need help with a Secured Promissory Note?

Create a free project posting
Clients Rate Lawyers 4.9 Stars
based on 11,549 reviews

Want to speak to someone?

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

Request a call

Find lawyers and attorneys by city