Have you ever considered loaning a friend or business associate money? Maybe you are trying to help a struggling friend or family member. Perhaps you want to assist a business associate. Before handing over any money, you should protect yourself by securing the loan with a properly written promissory note.
4 Tips For Writing a Promissory Note
A promissory note is a written contract, just like a home or car loan, that states the terms of the agreement and loan. This includes, but is not limited to, the total amount of money being lent, any interest that accrues, repayment terms such as the monthly payment amount, and what happens if the borrower defaults on the loan.
Consider Adding Loan Clauses
You should think about whether or not a prepayment or acceleration clause would benefit your note. A prepayment clause addresses what will happen if the loan is paid off early. Will you lose the interest you wanted, or are there any fees for paying the loan off early. An acceleration clause is helping in the event the borrower defaults and doesn’t submit a payment. You want to ensure that the borrower immediately submits payments for all missed payments and doesn’t just restart paying, thinking the missed payments would just be tacked onto the end of the loan period.
Consult With An Attorney In Your State
It is crucial to ensure that the Promissory Note that the parties agree upon complies with state laws. Consult with an attorney in your state to ensure your Promissory Note properly addresses the legal amount of interest that can be charged, notice requirements, jurisdictional protections, default provisions in the event of non-payment, and who will be responsible for paying and court costs and attorney fees if you do have to go to court to collect.
Offer Clarity Over Simplicity
Make sure that the terms of your note are clear and concise. Have language that explicitly states the principal amount being borrowed, the interest rate used, all fees or charges that can be incurred, and required notices that must be given if the borrower defaults and doesn’t pay.
While some Promissory Notes are simple and don’t contain all of these clauses, those notes also are more difficult to enforce and ensure repayment.
Think Ahead
Finally, remember that even if the borrower does default on the note, and you go to court, and a judge finds in your favor, you must begin the collections process. Don’t let this be the first time you become aware of any assets you can go after to collect upon the judgment. Ensure that you do your due diligence before loaning any money or entering into a Promissory Note to ensure that the borrower has assets that you can go after if they do default. You don’t want to be stuck in a situation where you are left with an uncollectible judgment.
To find out how the collections attorneys and team at Andalman and Flynn, P.C. can help you, please visit Andalman and Flynn Collections.
Contact us at 301-563-6685.
About Andalman & Flynn Collections: For decades, businesses and professionals have been turning to the experienced collections attorneys at Andalman & Flynn for their debt recovery needs. A licensed collections agency, their experienced team successfully navigates the complex laws surrounding debt collection practices. The firm combines cutting-edge technology with savvy, effective debt resolution methods that result in high success rates and fast recovery times. For more information, please visit www.andalmanflynncollections.com.