Promissory Note

How To Use

The tough language involved in this document is required to improve your chances of collecting on a defaulted note. As a rule, these kinds of notes are subject to collection problems with the borrower.

The lender can forebear if he or so chooses. However, strict terms are required to improve the odds of ultimate collection. We recommend a Balloon Note or this Note, instead of a simple Demand note, because both have a predictable end point for all parties. Whether you elect to use a Balloon, Demand, or simple Promissory Note, one of these types of Notes should be used, in our opinion, if a friend or family member requests a loan. The best result can be for the prospective borrower to decide they do not want to undertake the risks of such a loan. Good; you are off the hook.

If you are the borrower desiring a loan from a family member or friend, this is a good document to use if you mean it. If that person shows the document to a financial advisor or attorney, they will report that you are “serious” about repayment and have provided the appropriate protections. This, in fact, is exactly what happened to me in my first company, the Umbroller stroller company, when my partner and I both used family loans.  Both were repaid in full and complete satisfaction to the parties, in part, because the terms of the loan were binding upon our Corporation and thereby influenced our financial backers to repay the loans as due. On a personal basis, because we put tough terms on ourselves, our families didn’t feel like irresponsible fools for giving us the money!

This is a simple straightforward document that only requires the signatures of the party. If you are concerned about any later dispute, and being on the safe side is always prudent, we recommend you obtain a notary verification and signature as well.

There should be only one original of this document; multiples imply multiple obligations by the borrower. The lender should keep the original in a home safe or safety deposit box. Copies can be kept as desired, by the parties.