Loan Note & Promissory Note Templates

Loan Notes and Promissory Notes are both financial instruments that evidence debt. They provide a simple way of acknowledging a debt and are legally binding contracts. They are useful when a full loan agreement is not required or may be inappropriate, for example if the loan is short term and between individuals, a company and an employee or a club or society looking to raise small amounts from a large member base.

Both loan notes and promissory notes are however more than simple IOUs, because as well as stating the amount(s) owed, they state the necessary steps to pay back the debt. Loan notes are similar to promissory notes; however significantly only promissory notes are negotiable instruments, meaning that the right to be paid under the note can be freely transferred.

A Promissory Note consists of a written, dated and signed unconditional promise by the maker to pay a definite sum of money to a payee on demand, or at a specified future date. The note can provide for interest to be payable on the debt. A promissory note is only signed by the promisor (maker), and not by the payee (the lender).

A promissory note is freely transferable (hence the promise to pay is unconditional).

In the case of promissory notes, the law presumes (contrary to the usual rules of contract) that consideration is provided. Thus it is not necessary to execute a promissory note as a deed.

This sub-folder contains several different versions of the Promissory Note, tailored for companies and individuals. The Promissory Note (Basic) is best suited for loans between individuals of small amounts of money where no interest is payable. The Promissory Note – Company (Basic) is the same, but for use by a company. Other versions have provision for interest and for payment by instalments.

A Loan Note is on the whole a more sophisticated financing arrangement than a promissory note. The lender (note holder) effectively buys a loan note from the borrower (issuer of the note) in exchange for the borrower’s obligation to pay for the notes in the future in accordance with the terms and conditions of the loan. The loan note is executed as a deed. Loan notes can be issued to represent deferred consideration amongst other things in a sale and purchase of property; however this loan note instrument has been created purely to raise finance.

Our loan notes are drafted in a simple, unsecured form of certificate, with interest payable and a redemption date specified. They are also drafted as non-transferable. This folder contains both a long and short form loan note.

Loan notes can be complex documents and there can be tax implications to their use. Independent legal and tax advice should be considered.

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