Do You Need a Corporate New York Promissory Note?
A promissory note is a legally binding document that outlines a borrower's promise to repay a loan. Promissory notes are common when borrowing personal loans from friends or family members. But they can also be incorporated into business loans. Here is an overview of how a corporate promissory note works.
An Overview of New York Promissory Note for Business Loan
A promissory note spells out a borrower's promise to pay the loan on the specified date. Lenders can customize the note to suit the type of transaction, the amount owed and the preferred payment plan.
A promissory note obliges the borrower to pay debts, failure to which they will face legal consequences. However, unlike the traditional loan contracts, a promissory note does not cite what should be done if the borrower defaults on payment.
The best part about promissory notes is that lenders can include as much information about the loan as they want, provided the document identifies the borrower, lender, loan amount and the payment period.
The other reason for commercial promissory notes is to mitigate risk and assure the borrower of protection. It's highly advisable to use a secured promissory note for commercial loans, as this gives you more assurance that the borrower will pay.
And if they fail to pay, you can foreclose the collateral to cover the loan. With this, you do not haveto worry about losing your business money and harming your bottom line. Furthermore, you can decide to sell the promissory note to an investor to reduce risk.
Similarly, the promissory note shows that you are not a scammer, making borrowers trust you more. It's, therefore, a win-win situation for both parties.
Types of Business Loan Promissory Notes in New York
There are two ways to use a New York promissory note to borrow money. For starters, you can list yourself as the borrower and in this case, the loan is termed a personal loan even though it will be used for business. The loan check will be made out to you instead of your company.
The idea of a personal promissory note for a business loan is common for startups. Perhaps you are borrowing money from family or friends for startup capital since you cannot qualify for other commercial funding options like crowdfunding and bootstrapping.
You will personally be responsible for repaying this loan, hence the need for a personal promissory note. Depending on the loan amount and the borrower's track record, the lender may issue an unsecured or secured promissory note.
On the other hand, you can name your business as the borrower on the promissory note. This will be termed a business promissory note and it's more formal than the personal one.
There is a range of benefits of borrowing a loan in your company's name. First, the step reduces personal liability, thus protecting your assets if your business cannot repay the debt. This is primarily helpful if you are in a partnership since you won't have to bear the pressure alone.
What to Include in a Commercial Promissory Note?
The critical elements that must be included in a promissory note are:
- The names and addresses of the lender and borrower
- The loan amount
- The interest rate
- The date of payment
- The preferred payment plan (on-demand, installments, lump-sum)
- If the loan is secured by collateral
- Date of promissory note issuance
- Both parties’ signatures
- A witness signature
Whether you want to register your commercial loan as personal lending or a business loan, our free New York promissory note templates allow you to customize the document to your liking. All you have to do is download the sample form and fill in the required fields.