ContractsCounsel Logo

Secured Promissory Note

Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 7,503 reviews
Home Types of Contracts Secured Promissory Note

Jump to Section

Need help with a Secured Promissory Note?

Post Project Now

Post Your Project (It's Free)

Get Bids to Compare

 Hire Your Lawyer

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

Scott S.

41 projects on CC
View Profile

James H.

2 projects on CC
View Profile

Emmanuel K.

1 project on CC
View Profile

Brian R.

1 project on CC
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.

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 Secured Promissory Note Lawyers

Christopher L. on ContractsCounsel
View Christopher
Member Since:
September 6, 2023

Christopher L.

Business Lawyer
Free Consultation
Minneapolis, MN, United States
12 Yrs Experience
Licensed in MN
New England School of Law

I have worked in banking, financial technology and technology as a legal and compliance executive who negotiates and drafts contracts, ensures products and services comply with applicable regulations, implements policies and procedures, oversees litigation, and manages corporate governance programs.

Kim G. on ContractsCounsel
View Kim
Member Since:
September 6, 2023

Kim G.

Business Lawyer
Free Consultation
26 Yrs Experience
Licensed in FL
Florida State University College of Law

Attorney and mediator with extensive experience in negotiating, drafting, and managing contracts in the private, public, and nonprofit sectors.

Michael C. on ContractsCounsel
View Michael
Member Since:
September 6, 2023

Michael C.

self employed
Free Consultation
Sacramento area
42 Yrs Experience
Licensed in CA
Lincoln School of Law

40+ years handling litigation matters for employers and employees, defense and prosecution of personal injury matters, CalOsha defense, prepare employment contracts, non-compete clauses, established drug policies and franchise agreements. represented banks in commercial litigation , asset retrieval matters. conducted audits of insurance company claims on behalf of employers, defended contractors in toxic tort cases, handled appeals to the insurance commissioner on workers compensation rate classification matters

Christian D. on ContractsCounsel
View Christian
Member Since:
September 6, 2023

Christian D.

General Practice Attorney
Free Consultation
Austin, Texas
10 Yrs Experience
Licensed in TX
St. Mary's University - School of Law

Christian Davila received his Juris Doctorate from St. Mary’s University and becoming a member of the State Bar of Texas in 2013. Before law school, he studied at Texas A&M International University (TAMIU), and participated in multiple programs across various fields of study, including the University of Texas Medical Branch-School of Medicine’s “Early Medical School Acceptance Program,” and the Hispanic Association of Colleges & Universities’ “National Internship Program” at the Library of Congress in Washington, D.C. Christian’s legal experience includes criminal law (both prosecution and defense), family law, transactional law, business litigation, real estate litigation, and general civil litigation. Christian was previously in-house counsel for a multi-million dollar apartment construction and management company, handling all property acquisition, document drafting, negotiations, and litigation. Christian is a former member of the American Association for Justice (formerly the Association of Trial Lawyers of America), and he has been distinguished by the National Trial Lawyers as one of their TOP 40 Civil Plaintiff attorneys in Texas UNDER 40 years old. He likes weightlifting, reading comicbooks, and being silly with his kids in his spare time.

Kahlee S. on ContractsCounsel
View Kahlee
Member Since:
September 6, 2023

Kahlee S.

Managing Partner
Free Consultation
Mount Dora, Florida
2 Yrs Experience
Licensed in FL
Barry University Dwayne O. Andreas School of Law

I opened Hestia Legal when I was 6 months pregnant with the focus on educating and assisting families in my community. While the majority of my practice revolves around Estate Planning, I have a history of experience with contract and general business agreement drafting, discovery drafting, and general litigation document drafting.

Nadir C. on ContractsCounsel
View Nadir
Member Since:
September 6, 2023

Nadir C.

Compliance Analyst
Free Consultation
2 Yrs Experience
Licensed in IL
Northern Illinois University College of Law

I am a licensed attorney in Illinois, I am currently a Regulatory Compliance Analyst.

Kyle T. on ContractsCounsel
View Kyle
Member Since:
September 7, 2023

Kyle T.

Associate Attorney
Free Consultation
Houston, Texas
1 Yr Experience
Licensed in IN
South Texas College of Law

Obtained J.D. in December 2021, admitted to the Indiana Bar in November 2022. Began working as a clerk for civil defense firm in March 2022 and have been the same firm to the present, currently working as an Associate Attorney.

Find the best lawyer for your project

Browse Lawyers Now
Secured Promissory Note lawyers by city
See All Secured Promissory Note Lawyers
related contracts
See More Contracts
other helpful articles

How It Works

Post Your Project

Get Free Bids to Compare

Hire Your Lawyer


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