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Promissory Note

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PROMISSORY NOTE (Forgivable Loan)

For value received, the undersigned, (Name of Employee), hereinafter called Employee, hereby promises to pay to (Name of Employer), a corporation organized and existing under the laws of the state of , with its principal office located at (street address, city, county, state, zip code), referred to herein as Employer, or order, at (address where payment is to be made), or such other place as Employer may designate in writing from time to time, in lawful money of the United States of America, without demand, deduction, setoff or counterclaim, the principal sum of $ (Amount). This Promissory Note shall bear no interest, except as provided in Paragraph 4 below.

1. Payments.

All outstanding principal and accrued interest under this Promissory Note shall be due and payable on the Due Date (as defined below); provided, however, that so long as Employee remains employed by Employer on a regular and full-time basis, Employee’s obligation to pay principal and interest under this Promissory Note shall be forgiven as follows: (i) principal in the amount of $ (Amount) shall be forgiven on ; (ii) principal in the amount of $ (Amount) shall be forgiven on ; and (iii) principal in the amount of $ (Amount) shall be forgiven on .

2. Due Date.

The Due Date shall be the earlier of (i) the date of termination or cessation of the employment of Employee by Employer, involuntarily for cause, or (ii) . The loan will be forgiven in full if employment is terminated prior to the end of the (number)-year term by Employer other than for cause or (iii) by Employer or Employee as a result of death or permanent disability of Employee.

3. Purpose of Loan.

Borrower acknowledges and agrees that Employer is making this loan to Employee for the express purpose of facilitating Employee’s relocation to the area of Employer’s offices located at (street address, city, county, state, zip code). Employee represents and warrants to Employer that Employee will use all proceeds of this Promissory Note for purposes of relocating him and his family to (name of city and state).

4. Default.

In the event that Employee fails to timely pay any amount or perform any other obligation of Employee under this Promissory Note, Employer may, at its option, declare the entire principal sum under this Promissory Note immediately due and payable. In the event that Employer exercises this option, or the principal balance of this Promissory Note otherwise becomes due and payable, all principal then outstanding under this Promissory Note shall thereafter bear simple interest at the lesser of ten percent (10%) per annum or the maximum rate permitted by law. Failure to exercise this option shall not constitute a waiver of Employer’s right to exercise the same with respect to any prior or subsequent defaults.

5. Attorneys’ Fees.

In the event any legal action or proceeding is required to enforce or interpret any provision of this Promissory Note, Employee shall pay to Employer upon demand all costs of collection and reasonable attorneys’ fees incurred by Employer in connection therewith.

6. Miscellaneous.

The makers, signers, drawers, guarantors, sureties and endorsers hereof severally waive presentation for payment, demand, protest, diligence in collecting, notice of dishonor, notice of extension of time, and notice of protest or nonpayment. The provisions of this Promissory Note shall be governed by (name of state) law

IN WITNESS WHEREOF, Employee has executed this Promissory Note as of the day of , 20.

Name of Employee

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What a Promissory Note Is and When It’s Used

A Promissory Note is a written, signed promise by one party (the maker or borrower) to pay a definite sum of money to another party (the payee or lender) under specified terms. Promissory notes set the principal amount, interest rate if any, repayment schedule, maturity date, and remedies on default. They are commonly used for personal loans, business loans, seller-financed purchases, and as the underlying obligation for secured transactions; enforceability depends on clear terms, valid signature, and compliance with applicable state law and usury limits.

Why a Clear Promissory Note Matters

A well-drafted promissory note creates a clear, enforceable record of the loan, defines repayment and remedies, and supports collection or secured-credit actions. It reduces ambiguity about terms and can speed dispute resolution.

Why a Clear Promissory Note Matters

Who Typically Prepares or Signs Promissory Notes

Promissory notes are used by a range of parties from individuals to businesses; the document should match the complexity and risk of the transaction.

  • Private lenders and borrowers executing personal or family loans, using simple terms and repayment schedules.
  • Small businesses and startups documenting short-term working capital or shareholder loans with repayment milestones.
  • Real estate buyers and sellers in seller-financed transactions documenting purchase-money loans and security arrangements.

Choose the level of formality (notarization, attorney review, security filings) based on loan size, collateral, and regulatory considerations.

Core Elements to Include in a Professional Promissory Note

Include precise, standalone provisions so the note can be enforced without recourse to ancillary agreements.

Principal

State the exact dollar amount being loaned and whether advances or additional draws are permitted, with clear rounding rules.

Interest

Specify rate type (fixed or variable), calculation method (simple vs. compound), payment frequency, and any maximum or usury protections.

Repayment

Set payment schedule, installment amounts, payment method, prepayment terms, and application of payments to principal/interest.

Default

Define events of default, grace periods, acceleration rights, late fees, and permitted cure periods for the borrower.

Security

If secured, reference collateral, attachment steps, and cross-reference any UCC-1 financing statement filings and requirements.

Governing Law

Name the state law that will govern interpretation and dispute resolution, and any venue or jurisdiction preferences.

Required Data Elements at a Glance

Loan Amount: Exact dollars and cents
Borrower Name: Legal entity or individual
Lender Name: Legal entity or individual
Interest Rate: Annual rate or 0% stated
Maturity Date: MM/DD/YYYY format
Signatures: All parties and dates

Step-by-Step: Completing a Promissory Note

Follow these sequential steps to prepare a clear, enforceable promissory note.

  • 01
    Draft Core Terms: Define principal, rate, repayment, maturity.
  • 02
    Decide Security: Determine if collateral or guaranty is required.
  • 03
    Review Compliance: Check usury limits and consumer-disclosure rules.
  • 04
    Sign and Date: Obtain signatures and witness or notary if needed.

How to Configure an Online Promissory Note Workflow

Typical digital workflows require specific field configurations to ensure legal validity and auditability.

Field Configuration
Signature Required; signer email + timestamp capture
Date Field Auto-fill MM/DD/YYYY on signer action
Initials Optional; use to track page-level consent
Attachment Allow upload of IDs or collateral docs

Where to Send or File the Completed Note

Destination depends on whether the note is secured, part of a transaction, or retained for records.

  • Signed Parties: Provide fully executed copy to lender and borrower
  • Secured-Party Filing: File UCC-1 with state filing office if collateral used
  • Loan Servicer: Deliver copy to any servicer or trustee handling payments
  • Retention: Store originals or verified electronic copies for compliance

Digital Signing and eSubmission Considerations

Choose a platform that captures intent, consent, attribution, and retention to satisfy ESIGN/UETA enforceability standards.

  • Authentication: Email, SMS, or stronger methods
  • Audit Trail: IP, timestamp, and action log
  • Document Formats: PDF or DOCX with exportable audit record

Ensure the provider supports required integrations and compliance controls for your industry and jurisdiction.

Key Timelines and Deadlines to Track

Track payment dates, default notices, and retention milestones to preserve rights and reduce collection risk.

First Payment Date:

Date specified in the repayment schedule

Late Payment Notice:

Follow contract grace period before formal notice

Acceleration Trigger:

Occurs on contract-specified default and cure lapse

Statute of Limitations:

Typically 3–6 years depending on state law

Record Retention:

Keep executed note for the life of the loan plus recommended period

Penalties and Legal Risks of an Improper Note

Unenforceable Terms: Clauses that contradict statute
Usury Exposure: Interest exceeding legal maximums
Tax Misreporting: Incorrect interest reporting consequences
Invalid Signatures: Missing consent or attribution
Improper Security: Defective collateral description
Evidence Gaps: Missing audit trails or originals

Common Preparation Mistakes to Avoid

  • Using vague repayment language that leaves payment timing or amounts undefined, creating disputes about due dates and late fees.
  • Failing to verify legal names for entities and individuals, which can complicate enforcement and UCC-1 filings later on.
  • Overlooking state usury caps or consumer-lending disclosure rules, exposing the lender to statutory penalties and defense to repayment.
  • Not recording security interests or incorrectly describing collateral, which can render a lien subordinate or unenforceable.

Saving, Exporting, and Supporting Documents

Preserve the signed note and supporting files in durable, retrievable formats and include associated evidence to substantiate the transaction.

Export Formats

Save the executed note as PDF/A for archival and as native DOCX for editing or redaction history when needed.

Supporting Documents

Attach loan applications, ID copies, payment schedules, and UCC-1 filings to the executed note for a complete record.

Audit Trail

Retain an immutable audit record showing signer identity, timestamps, IP addresses, and any authentication method used.

Backup Storage

Store encrypted copies offsite or in compliant cloud storage with access controls and retention policies.

Typical Signatory Roles

Loan Officer

A lender-side representative responsible for reviewing borrower credit, confirming terms, and ensuring the promissory note and any security documents are executed and filed correctly.

Borrower

The individual or entity legally obligated to repay the debt; must provide accurate identity information and sign in the required format to bind the obligation.

Notarization and Witnessing: Typical Authentication Flow

When you require notarization or witnesses, follow these steps to authenticate signatures and preserve evidentiary quality.

01

Prepare Originals

Ensure the final, unsigned document is complete before presenting for signing.

02

Identity Verification

Signer presents government-issued ID and any additional credentials.

03

Witness Presence

If witnesses required, have them observe signature and sign where indicated.

04

Notary Acknowledgement

Notary completes acknowledgement or jurat as appropriate.

05

Remote Notarization

If used, record the A/V session per state rules and retain the recording.

06

Attach Certificates

Include the notary certificate and any witness affidavits with the note copy.

07

File Security Docs

If secured, file UCC-1 after signature to perfect the lien.

08

Distribute Copies

Provide executed copies to all parties and retain master record.

Practical Tips for Accurate Promissory Note Completion

Adopt consistent documentation practices to reduce disputes and simplify enforcement.

Use Clear Monetary Language
Spell out the amount in both numerals and words, and include rounding rules and currency designation to prevent ambiguity.
Avoid Ambiguous Dates
Use MM/DD/YYYY for effective, first payment, and maturity dates; reference time zones for deadlines if cross-state.
Document Communication
Keep written records of rate changes, waivers, or forbearance agreements and attach them to the promissory note as amendments.
Verify Identity
Confirm signer identity with acceptable ID or electronic authentication methods, and capture the chosen authentication in the audit trail.

eSignature Vendor Pricing and Feature Comparison

Basic pricing and feature availability for common eSignature vendors; signNow is listed first for parity in feature comparison.

signNow DocuSign Adobe Sign PandaDoc HelloSign
Starting Price $8/user/mo $15/user/mo $14/user/mo $19/user/mo $15/user/mo
Free Trial 7-day trial Varies Varies Varies Varies
Bulk Send Yes Yes Yes Yes No
Audit Trail Yes Yes Yes Yes Yes
HIPAA Compliant Yes Yes Yes No No

Real-World Promissory Note Use Cases

Two concise examples show common scenarios and practical outcomes where promissory notes are effective.

Private Loan Example

A small-business owner lends capital to a vendor with a 12-month note and fixed monthly payments.

  • The note includes a simple security interest in equipment.
  • Using a clear payment schedule, UCC-1 filing, and signed copies reduced collection time and clarified priority among creditors after a later default.

Seller-Financed Purchase

A homeowner finances a buyer with a multi-year note and balloon payment at maturity.

  • The note references a deed of trust securing the loan.
  • Recording the security instrument in the county and providing fully executed electronic copies to both parties simplified transfer and enforced foreclosure remedies when needed.

Frequently Asked Questions About Promissory Notes

Answers to common practical and legal questions when drafting, signing, or enforcing promissory notes.


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