Promissory Notes

 

A promissory note is a legal financial instrument, in which one party (the maker or issuer) promises in writing to pay a determinate sum of money to the other (the payee), either at a fixed or determinable future time or on demand of the payee, under specific terms. These instruments are usually transactions entered by the parties as an interim financing associated with a pending or future financial event.

The documentation for the promissory note is very simple to produce. The terms of a note usually include the principal amount, the interest rate to be paid, if any, the parties involved , the date, the terms of repayment (which could include interest) and the maturity date. Sometimes, provisions are included concerning the payee’s rights in the event of a default, which may include foreclosure of the maker’s assets.

Demand promissory notes are notes that do not carry a specific maturity date, but are due on demand of the lender. Usually the lender will give the borrower a thirty day notice to cure (pay) the debt before the payment is due. For loans between individuals, writing and signing a promissory note are often instrumental for tax and record keeping.  A FACE HORIZONTAL WITH SHADOWpromissory note is typically unsecured, with interest only payments, specific performance milestones, with no equity conversion features and lacks the formality and rigidity of other debt instruments.  A promissory note is usually held by the payee until the debt has been discharged, when it is canceled by the payee and returned to the issuer.