The Promissory Note: Your Written Promise to Repay

A promissory note is the document where you agree to pay back the loan. It states the money terms: how much, at what rate, on what schedule, and what happens if you don't.

Note vs. the security instrument

Two documents work as a pair. The note creates the debt. The security instrument, a mortgage or a deed of trust depending on the state, ties that debt to the property as collateral. The note says you owe. The security instrument says the lender can take the property if you don't pay. When the note is paid off, the lender records a release or reconveyance that clears the lien from title.

What is inside

• Principal amount and interest rate
• Payment amount and due dates
• Maturity date
• Late charges and default interest
• Prepayment terms, if any
• Default and acceleration language, which lets the lender call the full balance due

A simple example

Example, round numbers. Your note is for $250,000 at 10%, interest only, due in 12 months. Each monthly payment is about $2,083. On the maturity date, the full $250,000 plus any unpaid interest is due. If you miss payments and the note has an acceleration clause, the lender can demand the whole balance early.

Why it matters to you

The note is the deal. Verbal promises that are not in it generally don't count. Read the default, late charge and prepayment language, along with any separate guarantee, before you sign, and ask questions while you still can.

At RSC Private Lending, the borrower on the note is an LLC, LP or corporation, backed by a personal guarantee, and every loan is for business purposes only. Send us your scenario for a term sheet in 24 hours. Subject to underwriting.