“Neither a borrower nor a lender be…” Well, Shakespeare wrote that a long time ago. At various times, most people today are both borrowers and lenders, for personal and business purposes. A Promissory Note is a basic agreement between a lender and a borrower that can protect your assets and future returns when you borrow and lend money, if you’re smart about it.
There are two basic types of Promissory Notes: Due on a Specific Date notes and Due on Demand notes. A loan under a Due on a Specific Date Promissory Note must be repaid by the Borrower to the Lender on a specified due date. A Due on Demand Promissory Note is payable "on demand," meaning it must be paid immediately by the Borrower upon request by the Lender.
The Promissory Note itself is a document that specifies the terms, rights, and obligations that apply to a loan. The party making the loan is the "Lender" and the party borrowing the loan funds is the "Borrower." The Note includes provisions regarding the amount of the loan, the interest rate, the date by which the loan must be repaid, and general provisions for enforcing the repayment of the loan.
Interest. Of course, in addition to the payment date, the key term in most promissory notes is how much interest will be paid by the borrow to the lender. Most states have usury laws that limit the amount of interest that can be charged. Therefore, if an interest rate will be charged that is unusually high, it is advisable to check with a lawyer or local bank to make sure that state usury laws will not be violated.
The Internal Revenue Service has special "imputed interest" rules that apply if no interest is charged or if the interest rate charged is lower than the statutory federal rate of interest. The IRS treats such loans as having a higher interest rate than the rate stated in the Note. Exceptions may apply to most small loans, however. Consult a tax advisor or lawyer if no interest or low interest will be charged. The statutory federal rate of interest changes each month. This information may be obtained directly from the IRS.
If the Borrower fails to repay the loan upon demand, it is common to assess a higher rate of interest that becomes effective as of the date of demand. This higher "default rate" provides an incentive for the Borrower to pay the Note promptly.
You can create a Promissory Note anytime using this Easy Promissory Note wizard.
Labels: business loan, loan document, loan form, personal loan, promissory note
# posted by Charley Moore : 9:16 PM
