Business Law · Haute Lawyer Network
What Is a Promissory Note?
Last reviewed: June 2026
A promissory note is a written, signed document in which one party — the maker — unconditionally promises to pay a specified sum of money to another party — the payee — either on demand or at a defined future date. Promissory notes are the fundamental instrument for documenting loans and debt obligations — from informal family loans to sophisticated commercial financing. A complete promissory note specifies the principal amount of the loan, the interest rate and how interest is calculated, the payment schedule, the maturity date, what constitutes a default, the remedies available upon default, and whether the note is secured or unsecured. Secured notes specify the collateral — real estate, equipment, accounts receivable, or other assets — that the lender can seize upon default. Unsecured notes provide no collateral security.
Frequently Asked Questions
What is the difference between a promissory note and a loan agreement?
A promissory note is signed only by the borrower and is the borrower's unconditional promise to pay. A loan agreement is a bilateral contract signed by both parties governing all terms of the loan. For complex commercial loans, both documents are typically used together.
Is a promissory note enforceable without collateral?
Yes. An unsecured promissory note is enforceable as a contract — the lender can sue on the note if the borrower defaults, obtaining a judgment that can be collected against the borrower's assets. The limitation is that there is no collateral to repossess.
What happens if a promissory note is not repaid?
The holder can sue on the note, obtain a judgment, and use collection remedies — wage garnishment, bank levies, and liens on real property — to collect the judgment.
Can a promissory note be transferred to a third party?
Yes — negotiable promissory notes can be transferred (negotiated) to third parties who then have the right to collect. The transfer is accomplished by endorsement and delivery.
What is an acceleration clause in a promissory note?
A provision allowing the lender to demand immediate repayment of the entire outstanding balance upon a default — rather than merely the missed payment. Acceleration clauses give lenders much greater enforcement power.
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