What Is Included In a Promissory Note?Duluth/Gwinnett CPA Advises Gwinnett Business How to Draft Promissory Notes

Frequently businesses and individuals alike may extend, grant or receive credit in the furtherance of their business and personal interests.  A basic understanding of promissory notes and their use and application are critical to protecting company assets, cash flow issues, as well as profit maximization. 

"Serving Gwinnett as a CPA for decades, one of the most frequent oversights I have seen small business owners make is failing to have employees sign a duly authorized and collateralized promissory note for any business loans or loans to employees. Just as a bank would not issue a loan without a promissory note so should you work to formally document any loans either to or from your business."
— John Dillard CPA

These initial parameters of review prior to signing a promissory note will be essential to their final agreement.  These issues will be key to helping ensure the business deal you get is actually the one intended.

Reputable Lenders

Much of the ups and downs in the stock market are caused by the variances in the lending sector.  Unscrupulous and usury lending, though limited by statute, can often be overcome by adding additional fees and charges.  Strive to work with lenders who are striving to put your needs first.  Beware of lenders whose credit policies are too lax, as you, like any good lender, will want to ensure that you are only getting loans you are able to repay.  Lenders whose underwriting policies are too loose are more apt to give you a loan that is not in your best interest.  This might result in your own inability to repay and perhaps even bankruptcy.

Prepayment Penalties

Frequently lenders will add prepayment penalties to an installment note/promissory agreement.  As lenders like all businesses are driven by a profit motive, they should have a fair expectation of profit.  Closing fees and interest charges generates these profit dollars.  However, in the event your business has an unforeseen ability to repay a note more quickly than anticipated it could be dramatically more economically advantageous to have an agreement without any prepayment penalty.  Absent any substantive overriding factors promissory notes without a prepayment clause should be given careful consideration.


Most loans of any substantive size will require the borrower to put up assets for which a lender will obtain title and possession in the event of a default.  These clauses are normal and typical and are predominantly geared towards protecting a lender in the event of a default.  Collateral can take any number of forms including the pledging of the asset being financed or other cash and stock funds and balances.  Typically a lender will file a UCC-1, which is a public record and advice of a lender’s security interest.  UCC-1’s generally are regarded by the courts and lenders alike based solely upon their order of filing.

Payment Terms

Understanding the current market place regarding rates, terms and conditions are an essential component of getting a loan which best suits your business’s needs and interests.  Frequently banks and other lending institutions will have a degree of flexibility in loan offers and are available all for the asking.  Obtaining two to three competitive bids from reputable lenders are a good way to get a sense and feel of your local marketplace.

Professional Advice

Never go it alone.  Your CPA is a critical part of the loan procurement process, as his wisdom, knowledge, and insight will help guide you to the best loan.  Frequently a little tweaking or good negotiation skills will save tens of thousands of dollars resulting in an improved bottom line and a smoother cash flow for your business.

Below please find a promissory note.  Please note this agreement is only presented as a sample note and that all promissory notes should be drafted in light of the business deal, current economic conditions, credit collateral, negotiation, etc.



FOR VALUE RECEIVED, [borrower] promises to pay to the order of [lender] the principal sum of [loan amount] in legal tender of the United States, with interest thereon from [loan date] at the rate of seven (7%) percent per annum, on the unpaid balance until paid.  Principal and interest shall be payable at the office of the note holder, [office location], or at such other place as the holder hereof may designate in writing according to the following terms:

  1. The payments will be [monthly payment amount] and due on the first day of each month beginning [date] and ending on the first day of [month and year].
  2. A current Financial Statement will be submitted by [date]
  3. The following assets will be assessed as collateral until the entire debt is retired:

    [list of assets]

Should any installment not be paid when due, or should the maker fail to comply with any of the terms or requirements, the entire unpaid principal sum evidenced by this Note, with all accrued interest, shall, at the option of the holder, and without notice to the undersigned, become due and may be collected forthwith or any and all collateral sold by most expedient means, time being of essence of this contract.  It is further agreed that failure of the holder to exercise this right of accelerating the maturity of the debt, or indulgence granted from time to time, shall in no event be considered as a waiver of such right of acceleration or stop the holder from exercising such right.

Installments not paid when due shall bear interest at the rate of seven (7%) percent, per month, from maturity.  Should this Note, or any part of the indebtedness, evidenced hereby, be collected by law or through an Attorney at Law, the holder shall be entitled to collect Attorneys’ fees in an amount equal to fifteen (15%) percent of the principal and interests, and all costs of collection.

Undersigned guarantor, endorser or other party, waives demand, protest, notice of demand, protests and non-payment.

Privilege is reserved by the maker of this note to pay all or any part of this indebtedness prior to maturity without penalty.

Signed: [signature of borrower]
Company: [company name]
Title: [title of signatory]
Date: [date signed]

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