Why Do You Need a Missouri Promissory Note?
There are many instances you may need to use a Missouri promissory note. Perhaps you borrowed a loan to finance expensive business equipments or plan to finance your customers' purchases. You could also be planning to lend money to a friend, colleague, or relative.
Whatever the reason for tailoring a promissory note, the document motivates the borrower to meet their deal cut and repay on time. Read on to understand everything about promissory notes in Missouri.
What Is a Promissory Note?
A promissory note is more like an agreement between a borrower and lender. The borrower promises to pay the loan within a specific period while meeting all the terms and conditions. The parties may involve a co-signer who acts as the witness depending on the agreement.
There are two main types of promissory notes which are:
Secured Promissory Note
A secured promissory note is an obligation to repay debt secured by a property or asset. If the borrower fails to repay the loan on time, the lender can seize the asset to cater to the amount borrowed.
Note that the collateral used to secure the loan must have an adequate value to cover the loan amount.The asset can be a car or real estate. And in that case, you may need another document such as a deed of trust or mortgage to ensure the validity of the property.
Unsecured Promissory Note
As the name suggests, an unsecured promissory note does not have any collateral to secure payment. Therefore, if the borrower fails to pay, the lender has to file a lawsuit first, hoping that the borrower has sufficient property that can be seized to cover the loan.
Unsecured promissory notes are primarily used for short-term loans. For instance, a 30-day promissory note doesn't necessarily have to be secured with collateral. And in most cases, the loan involved is only a small amount that can be repaid within a period.
What Are the Benefits of Missouri Promissory Notes?
A promissory note provides flexibility both for the borrower and lender. The agreement allows the parties to outline how the payments will be made, which could be in installments or on-demand. The payee may also request the borrower to make payments interest only or pay a lump sum at the end of a given period. Similarly, the payments can be made monthly, quarterly, semi-annually, or annually. A promissory note makes it easier for the involved parties to specify loan terms that suit their needs best.
Avoid Risk of Default
This is the main reason lenders should use promissory notes. The step allows the lender to transfer or sell the agreement to a third party. For instance, if a small business finances its customers' purchases, it can sell the loans to a third party, thus avoiding default risks. In return, the company can quickly achieve its bottom line.
Most loans, especially the unsecured don't legally have to be in writing. This leaves the borrower in a dilemma about their obligations, but a promissory note comes in to make things easier. The agreement outlines all the provisions, whether you choose a contingent promissory note or a conditional promissory note. And this makes it easier for you to meet the lender's expectations. Moreover, the Missouri promissory note requires a signature, which adds an extra layer of protection against fraudulent transactions.
A promissory note is a must-have when borrowing or lending money, no matter how small the amount may be. Luckily, you don’t have to seek a lawyer’s help when drafting the agreement. Get a free Missouri promissory note template or sample on our website to save both your money and time. The form is ready to use, so you only need to download it.