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Promissory note
Also called note, business note.
The written promise to pay a sum on defined terms - the instrument that makes a transaction a loan, with a stated rate, payment schedule and maturity date.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
A note states who promises to pay, how much, at what rate, on what schedule, and by when. It also carries default terms, default interest, acceleration rights and attorney fee provisions. It is usually accompanied by, but distinct from, a security agreement granting collateral and a guarantee signed by owners.
The presence of a note has consequences beyond documentation. Loans are subject to state usury limits where those apply to commercial credit, to lender licensing regimes in the states that impose them, and to disclosure requirements where enacted. Notes may also be negotiable instruments, which affects the defences available against a subsequent holder.
Advances are documented differently and deliberately: a purchase and sale agreement rather than a note, with a factor rate rather than an interest rate and no maturity date. Whether that documentation controls the legal characterisation is the question courts examine, and it is decided under the governing law named in the agreement on the specific terms in front of them.
Where this one catches people
The presence or absence of a note is the clearest structural signal of what you have signed. A note with a rate and a maturity is a loan and carries loan law with it. A purchase agreement with a factor rate and no maturity is drafted specifically so that it does not. The document does not settle the legal question, but it tells you exactly what the drafter intended it to be.
Where you will meet this term
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Promissory note — common questions
What does promissory note mean?
The written promise to pay a sum on defined terms - the instrument that makes a transaction a loan, with a stated rate, payment schedule and maturity date.
Where does promissory note catch people out?
The presence or absence of a note is the clearest structural signal of what you have signed. A note with a rate and a maturity is a loan and carries loan law with it. A purchase agreement with a factor rate and no maturity is drafted specifically so that it does not. The document does not settle the legal question, but it tells you exactly what the drafter intended it to be.
Is promissory note the same as an interest rate?
Promissory note is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does promissory note apply to?
Term Loan, Business Line of Credit, SBA Loan, Equipment Financing.
Is there a worked example of promissory note?
Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.
What else should I read alongside promissory note?
Confession of judgment, Maturity, Merchant cash advance, Personal guarantee, Purchase and sale agreement.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.