Sometimes, business owners need to secure funds to sustain their Las Vegas business. They can either take out a loan from a family or friend. When you are talking about a large amount of money, you may be asked to create a promissory note form. Before creating one for your Las Vegas business, you have to make sure you know everything about it, so you know all the legal implications you are putting yourself into.
What is a Promissory Note?
A promissory note is a financial tool that serves as a legal promise by one person to pay the other an amount of money on a specified date or on-demand. The note contains details such as:
- The parties involved. You must specify the name of both the borrower and the lender. Don’t forget to include the names and addresses. Should there be an additional co-signer, you should also include the name or business and their address.
- The principal amount. It must be a specific amount. Make sure that the currency is in U.S. dollars.
- Applicable interest rate. State how the interest rate must be used in the outstanding balance. Is it applied every month or every quarter? Please include it in the form.
- Late payment fees and penalties. The form must also include details on the liabilities of the borrower should they fail to pay on time. If you are allowing a grace period, state it as well.
- The loan maturity date. You should also state when the whole amount of the loan must be fully paid.
- Description of security or collateral. Include all the details about the security or guarantee of the loan. Make sure the property does exist, and you have information to validate its location. If the note has any co-signers, identify who of them owns the collateral.
- Date and place of issue. This detail is vital so that both parties can identify when and where the agreement was made and whether it was valid.
- Signature. Signature of both parties is one of the requirements to make the promissory note a legal document. Make sure not to miss this.
While some financial corporations also offer them as part of their product line, promissory notes allow business owners to secure additional funding from other sources than a bank.
When Do You Need a Promissory Note?
A promissory note is a lending document that acts as your written proof of promise to pay. Promissory notes are often necessary when:
You want to use the funds to capitalize on your startup business.
- When you want to purchase additional office furniture or electronic equipment to keep your business running.
- When you want to expand your business network.
What are the Laws About Promissory Notes?
Since promissory notes are recognized by the state and federal government, various laws govern its issuance and use. You have to know the state lending laws that cover the regulation of commerce and loans. In most cases, interest rates and usury limits are mandated by state laws. In Nevada, there are no limits as to what parties may choose to contract. However, if there is none indicated, parties may use the 2% interest rate used by most major banks in Nevada.
Is a Promissory Note a Legal Document?
Yes, promissory notes are legal documents but to qualify they must have these three items:
- Clear identification of the involved parties – the lender and the borrower
- Specified amount borrowed
- Signature of both parties
In most cases, securing a notary public is no longer necessary to validate the signature of the parties. However, it is highly suggested.
Is a Promissory Note Similar to IOU?
When it comes to legality, promissory notes are more complicated than IOUs. The IOU or I Owe Unto is an informal loan agreement. In most cases, it only contains the amount of loan between parties in the absence of payment terms. IOUs are also legal documents, but they are not as detailed.
How Can You Secure a Promissory Note?
When you want to create a promissory note for your Las Vegas business, you may be asked to provide collateral as an added security for the lender. Often, the guarantee could be something that is near to the value of the loan. Like most loan agreements, ensuring the security of the loan is paramount. That’s why loans without any security of payment often have higher interest rates.
Things to Consider When Writing a Promissory Note
Ask about interest on late payments. Make sure this is clear to you. This way, you are clear on the liabilities that you may have should you default on your debt.
Make the business as the borrower. If you want to create a promissory note for your Las Vegas business, name the promissory note on the company that will use the money. This way, the liability is on the company and not on you. This method ensures that the debt would not be under your name should the business fail to pay.
Promissory notes can be a flexible option for you to obtain the necessary funds for your Las Vegas business. It allows your business to flourish without the burden of paying high interest rates. If you are issuing it on behalf of your company, promissory notes can also be a source of additional funds with the monthly interest rates. You have to make sure that once you settle the loan amount, the promissory note must be canceled by the lender and must be returned to the borrower.