Guide on Using a Promissory Note to Fund a Business

Many people have a lot of ideas about starting different businesses. However, they did not manage to start these businesses because it is hard to borrow money from the bank. If the bank won’t lend you money, you should not give up on your dream but look for friends who would borrow you the money. If you found someone who agree to lend you money, it will be in good faith to put it in writing in a promissory note. In this way, your friend who lend you the money will have an assurance that you will repay him back the money.

Promissory note is the promise made by the borrower who is the promissor to the lender who is the promisee that he will repay back the money within a period of time. Usually, it is used in unsecured debt that does not involve the use of a collateral as security. It is not necessary for a repayment schedule to be included in the note.

However, many people who use promissory notes to start a business are not yet running an established business. In this case, the promissory note can only be used in a person to person transaction. This means you can’t borrow money from a business and the money has to be from an individual. You are bound to pay back the money to the lender no matter what happen to the business you set up. There is a risk of getting cheated when you are borrowing money from another individuals.

Established businesses can also borrow money from individuals through promissory notes. One of the reasons is that the business has several owners and borrowing from individual imakes it easier to pay back. Borrowing from individuals also allow the business to be evaluated as less risky. Using, a promissory note to raise capital for your small business can help to avoid extra bills and paperwork.

Before writing the promissory note, you must first determine the repayment plan. In amortized payment, you pay back only the principal amount. You will pay back the same amount every month for a specific number of years. Another type of repayment plan involves paying back equal payment every month which includes the principal amount and interest. When you reach the last installment payment, you are to pay back the rest of the principal and interest you owe.

The third type of repayment plan involves making interest only payment every month. When you reach the end of the loan term, you will make a final balloon payment of the principal and remaining interest. If you borrow money from a friend or relative, you will be able to pay back at any time you are capable to do so. This is why borrowing from a friend or relative is a better deal.

There are a lot of free personal promissory notes templates online. However, it will be better to get the promissory note form template from a PDF editor like Movavi PDF Editor just to be sure that you are using a valid form. The promissory note template in the software has the words Promissory Note in the header. It has already list down all the loan terms and you only need to fill in the key information about the about the loan in the fields.

In the first paragraph, you must enter the full legal name and address of the borrower and lender. Next, you must provide the principal amount, the date you will make the first payment, when the money should be paid back in full, and the state that govern the laws of the note. To add your signature, first sign it on a digital signature app on your tablet and use the copy/paste function to add it to the signature field.

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