What this form is for
A promissory note is used when your business borrows money and must document the repayment obligation. It serves as the legal IOU between borrower and lender, specifying principal amount, interest rate, payment schedule, and consequences of default.
Before you start
- Loan principal amount and purpose of the funds
- Annual interest rate (verify Georgia's usury cap for commercial loans, currently 5% above prime or 7%, whichever is greater, unless exempted for commercial transactions)
- Full legal names and addresses of borrower and lender entities or individuals
- Payment frequency and maturity date (when final payment is due)
- Whether you will pledge collateral and its description if secured
Step-by-step
1. Fill in the date of the agreement and the principal loan amount in both numerals and written words for clarity.
2. Identify the borrower (your business legal name) and lender with complete addresses. If borrowing as a corporation or LLC, include your title and authority to bind the entity.
3. Specify the interest rate as an annual percentage rate. Note whether interest is simple or compounded and the compounding frequency if applicable.
4. Detail the payment schedule including amount per payment, frequency (monthly, quarterly), due dates, and where payments should be sent. Include the maturity date when all remaining principal and interest must be paid.
5. Complete the late payment and default section. Specify any grace period, late fees (Georgia law allows reasonable fees), and the interest rate upon default if different from the stated rate.
6. If the note is secured, describe the collateral clearly. Reference any separate security agreement if applicable.
7. Add any prepayment terms, stating whether you can pay early without penalty. Some notes include prepayment fees; others allow penalty-free early payment.
8. Include the governing law clause confirming Georgia law applies and specify the county for any legal proceedings.
9. Sign and date in the presence of a notary if required by your lender. Corporate borrowers need authorized signatures with printed titles beneath.
10. Retain multiple copies; the lender keeps the original, and you keep a certified copy for your records and potential audits.
What lenders look for
- Banks scrutinize whether the interest rate and terms match market conditions. An unusually low rate between related parties may trigger gift tax questions or underwriting concerns about the legitimacy of the transaction.
- Ensure signatures match your corporate documents. Unauthorized signatures void the note and create legal complications that delay or kill loan approvals.
- Avoid vague payment terms like "when able" or missing maturity dates. Lenders require definite payment schedules to assess cash flow capacity and risk.