Loans and Promissory Notes

Use this section when a charity or a members' club needs to borrow money, typically a modest sum from a supporter, a member or a related organisation and wants the loan properly recorded. The documents are simple loan instruments rather than full commercial loan agreements and suit short-term borrowing where both sides want clarity about the amount, the repayment date and whether interest is payable.

Loan note or promissory note?

A loan note is a document issued by the borrower setting out the terms on which it has borrowed, including interest. A promissory note is a shorter, simpler written promise to repay a stated sum on a stated date or on demand, with or without interest. For a small loan on straightforward terms a promissory note is usually enough.

Which version is for my organisation?

The right document depends on the borrower's legal structure. For a charitable company limited by guarantee, a company limited by guarantee that is a club or a charitable incorporated organisation (CIO), which can each borrow in their own name, use the Loan Note (with interest) - Company limited by guarantee (club/charity) or CIO (charity), the Promissory Note (with interest) - Company limited by guarantee (club/charity) or CIO (charity) or the Promissory Note (no interest) - Company limited by guarantee (club/charity) or CIO (charity).

For an unincorporated charity or club, which has no legal identity of its own, use the Promissory Note (with interest) – Unincorporated Association (club/charity) or the Promissory Note (no interest) – Unincorporated Association (club/charity). In that case the people who sign are taking on the obligation personally, so the trustees or committee should make sure they have the necessary authority and consider their own position before signing.

Before borrowing, trustees should check that the governing document gives the charity power to borrow and that the loan is in the charity's interests.

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Frequently Asked Questions

Someone will lend our charity money. Why do the loan documents differ by charity structure? +

Because who is actually borrowing differs. A charitable company or CIO borrows as a legal entity and signs in its own name; an unincorporated association cannot, so its trustees or officers borrow personally on the charity's behalf, carrying the liability themselves. The loan and promissory notes here come in versions for each structure, with and without interest, so the signature block and liability match reality. Check your governing document's borrowing power and minute the trustee decision first.

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