How Do I Write a Promissory Note?

A promissory note is a legal document, and although it is relatively basic, writing one is often still something of an artful undertaking. In most cases, notes must set out the name of the parties involved, the total amount of the loan, and the conditions of repayment. Any security, interest, or other considerations must also be named, and the document usually has to be signed by both parties. Although some free templates are available online and in books, it is usually a good idea to at least investigate your jurisdiction’s rules before assuming that a note you write will be binding.

Identifying the lender and the borrower is usually the first thing you must do when sitting down to write a promissory note. List the full name of each party, as well as the date — both the date of the precipitating transaction and the date of the note’s drafting. Many documents drafted by attorneys will use archaic language and fancy turns of phrase in identifying the key players, but this is not usually required. As long as you clearly identify who is involved, even the simplest language is usually sufficient.

Once you have named the parties, describe the transaction. Write down who gave what to whom, and record the terms of the exchange. The precise amount as well as the medium — that is, whether the loan is to be paid in cash, check, or certified bond, for instance — may seem too obvious to note, but can help clarify both what happened and how. One of the goals when you write a promissory note is to capture the essence of the loan transaction in such a way that an outside observer or judge could use it to recreate exactly what happened when the agreement was struck.

The next thing to include is the repayment plan. If the borrower is going to be repaying the money on an installment basis, set out all of the dates on which payments are due. How the payments are to be received should also be included. This can include payment type as well as location.

In order to write a promissory note that will be useful in the event on non-payment, it is crucial that you have first set out the terms. Without some evidence that the parties agreed to make and receive payments in a certain way, disputes often come down to mere recollections. Battles of who said what are rarely convincing in court.

Any interest owed should also be included as you write a promissory note. Whether or not the borrower can accelerate payment by overpaying or paying into the principal, which tends to reduce interest payments over time, can also be included. Any loan security should be identified, as well.

Signatures are usually a firm requirement to any negotiable instrument or bank note, and promissory notes are no exception. Depending on the jurisdiction, a witness’ signature or the stamp of a notary public may also be required. A signature essentially signifies intent. When the parties named at the top of the note sign it at the bottom, they are testifying that they have read the terms, agree to them, and understand that they will be bound by them.

It is not always possible to write a promissory note that is legally enforceable, even if it includes all of these basic elements. Depending on where you live and how much money is at stake, there may be special considerations or clauses that must be incorporated. A defective promissory note in no way invalidates the loan, but can prove troublesome should one of the parties not live up to his or her end of the bargain. It is often a good idea to seek the advice of a local attorney at some point as you set out to write a promissory note, even if just on an informational basis.