Loans are a form of debt finance that covers borrowing by companies. Loans can be obtained from banks or credit unions, other businesses and even family and friends. The advantage of obtaining finance through debt and borrowing is that you won't need to give away any equity in your business and it also allows for any existing shareholders to retain their shareholdings without diluting them. However, the disadvantages are that if your business is new without any trading or credit history, it may be difficult to secure debt finance from banks or other lending institutions or even investors.
When you borrow money from other businesses make sure to use a Loan agreement. The loan agreement will set out the loan amount, the purpose of the loan, when and how the loan will be repaid, any interest payable and whether the loan is secured or unsecured. Whether the loan will be secured will be a matter of negotiation between the parties. A secured loan means that it will rank higher on the list of creditors if the business were to go bankrupt. For further information, read Loans between companies.
A promissory note is an unconditional written promise to repay a loan or other debt, at fixed future dates. A promissory note is less formal than a loan agreement but is still legally enforceable. It is suitable for smaller amounts of money. They can also be used by private individuals who wish to formalise debts and loans between themselves. Use a Promissory note if you want to formalise a debt arrangement between yourself and another private individual.
For further information, read Loan agreements and promissory notes.