What this form is for
A promissory note is a legally binding agreement where your business promises to repay borrowed money to a lender under specific terms. Banks require this document to formalize loan amounts, interest rates, payment schedules, and what happens if you default.
Before you start
- Loan amount you're requesting and the exact purpose (equipment purchase, working capital, expansion, etc.)
- Proposed interest rate or whether you're accepting the lender's rate (Pennsylvania has no usury cap for business loans over $50,000)
- Repayment timeline: total term length, payment frequency (monthly, quarterly), and maturity date
- Collateral details if this is a secured loan (asset descriptions, valuations, lien position)
- Business and personal guarantor information including legal names, addresses, tax ID numbers
Step-by-step
1. Enter the note date and principal amount in both numbers and written words. These must match exactly or the note may be challenged.
2. Identify the borrower with full legal business name, entity type (LLC, Corporation, etc.), and principal place of business address.
3. Identify the lender (payee) with complete legal name and address. If borrowing from a bank, use their exact corporate name as it appears on correspondence.
4. Specify the interest rate as an annual percentage. Indicate whether it's fixed or variable, and if variable, reference the index (Prime Rate, SOFR) plus margin.
5. Detail the payment schedule: amount of each payment, due date of first payment, frequency, and final maturity date. Include where payments should be sent.
6. Add any balloon payment terms if the note doesn't fully amortize, specifying the balloon amount and due date.
7. Complete the prepayment clause stating whether you can pay early without penalty. Pennsylvania law doesn't prohibit prepayment penalties on commercial notes, so negotiate this carefully.
8. Fill in default provisions including grace periods (typically 10-15 days), late fees, and the lender's remedies. Include acceleration clauses that make the full balance due upon default.
9. Add any required insurance provisions, personal guarantee requirements, or financial covenant reporting obligations.
10. Sign with authorized signatures, printed names, and titles. Have signatures notarized if the lender requires it for enforceability.
What lenders look for
- Banks scrutinize whether your payment schedule aligns with cash flow projections in your business plan. A mismatch raises red flags about your ability to service debt.
- Missing or inconsistent information between the promissory note and other loan documents (security agreements, guarantees) will delay approval or trigger re-documentation at your expense.
- Pennsylvania follows the UCC for negotiable instruments, so any handwritten changes after signing require initials from all parties, or the note may be deemed non-negotiable.