How Can a Lender Be Sure That the Borrower Will Pay Back the Loan?
Lenders need more than just a vow of confidence. So, they will put the agreement down in writing in the form of a promissory note.
What is a Secured Promissory Note?
A Secured Promissory Note gives lenders the security of knowing that they can hold borrowers accountable to pay back the loan based on the agreed-upon payment schedule. At its core, it works as an “I.O.U.” between the lender and the borrower. The lender may also impose fees or increases in interest rate percentage (if the interest rate is not fixed) for lack of or late payments.
Borrowers may need Secured Promissory Notes to show their creditworthiness and demonstrate to the lender that they can be trusted with the funds and the repayment of those funds.
How Can an Attorney Help?
Are promissory notes bound by law? As business lawyers in The Woodlands, Texas, we can help you gain a clearer understanding of the laws. Promissory notes are legally binding if they meet the conditions under the law. The promissory note contains an offer of agreement between the borrower and lender, and both must accept the terms of those agreements.
These are the items that typically compromise a secured promissory note:
- The amount of money in the loan
- The date that the loan should be paid off
- The loan’s interest rate
- The interest rate if the borrower defaults
- Evidence of collateral being used to secure the note
- Payment terms (i.e. how and when the loan payments are made)
- What penalties will be enforced if the loan payments are made on time
- Signatures from both the borrower and the lender
Our legal team at Dossey & Jones, PLLC understand that at some point, you or your company will need to engage in a business relationship, and which includes acting as lenders. We can assist with drafting a secured promissory note that abides by all of the terms of the laws, is legally binding, and thus, holds borrowers to the terms.
Secured Versus Unsecured Promissory Notes
Another option regarding promissory notes is the unsecured promissory note. With secured promissory notes, the borrower offers some form of collateral, which can be used as a form of payment if the borrower defaults. Unsecured promissory notes, on the other hand, leaves the borrower vulnerable to legal action. If a loan is unsecured and thus has no collateral, the lender may not be able to recover the money lost if the borrower files for bankruptcy also.
Find Legal Counsel from Dossey & Jones, PLLC
Promissory notes can be completed relatively quickly and are also a cost-effective way of legally protecting your best interests. It offers borrowers peace of mind that goes a step a beyond a verbal promise. Let us help you create a secured promissory note that suits the needs of your business and transactions.
Call us at (281) 410-2792 to schedule a free appointment.