How to Write A Promissory Note

Every entrepreneur at one time or another has probably worried over presenting a brilliant business concept to a family member, friend or colleague hoping to get a check for $12,000 for the business. Money from family, friends or acquaintances is often the fastest and cheapest source of capital available to budding entrepreneurs. These types of loans account for more than 50 percent of all start-up business investment dollars.
Banks provide their own promissory note forms, but if you borrow money from an individual, you’ll need to come up with one on your own. There are emotional pitfalls to loans between family and friends, along with financial risks and administrative requirements. There are websites such as www.One2OneLending.com that will guide you through the process of creating a legally binding promissory note.
Often, small business owners fail to follow the basic but important lending guidelines when they borrow from an individual. This can result not only in any number of personal conflicts but also tax difficulties.
Documenting the loan can do no harm, and it can head off misunderstandings about whether the money is a loan or a gift. With a gift no repayment is expected, a loan requires repayment, while an equity investment is in return for shared ownership.
The obvious reason to hammer out all the details of the loan in writing is to keep harmony. Second, it becomes a taxing situation if you can’t prove the loan is formal and legal. Many entrepreneurs have been dragged into IRA audits over personal loans.
Let’s say you deposit a $25,000 check from your relative; your bank automatically informs the IRS about the deposit. In fact, all deposits over $10,000 are reported to the IRS. When the deposit does not show up on your personal or business taxes as income, the IRS will want to know why.
Always keep in mind this is debt obligation. A promissory note means that by nature you have the money to make payments on the loan. Be sure to have the cash flow to service the debt. If you have uneven cash flow you should not enter into a promissory note; perhaps you should look into an equity arrangement.
Treat a personal loan as carefully and as formally as any other business transaction. This and all other information about promissory Notes and their benefit can be found in the Resource Center at www.One2Onelending.com.
5 Key Aspects to Writing A Promissory Note:
1. Create a Promissory Note
A promissory note can be a do-it-yourself document. It is a simple contract whereby the borrower creates a note promising to pay the money back by a certain date.
There are free promissory notes or personal loan agreement forms available online. But also take a look at forms in One2OneLending.com.
Most of the time you can find a form that fits your situation. If there is something unusual about the repayment terms, then it may make sense to have the note reviewed by a lawyer.
The need for a lawyer rises with the more money you are trying to borrow. For a $1,000 note it doesn’t make economic sense to hire an attorney. But if you are talking more than tens of thousands of dollars consider consulting an attorney.
A promissory note basically includes the name of both parties (lender and borrower), date of the loan, the amount, the date the loan will be repaid in full, frequency of loan payments, the interest rate charged on the loan payments, and any security agreement.
2. Charging Interest
There is no legal limit to the amount you can borrow, it can be anywhere from $1,000 or $1 million. However, there are guidelines about charging interest. The lender must charge an interest rate that reflects fair market value. This has to be at least the applicable federal rate, which is another of layer of scrutiny the IRS uses to determine if this is really a gift or a loan. You can find at list of rates at the IRS.gov. The AFR is adjusted monthly and currently ranges from around 0.7 percent on loans of three years or less to under 4.5 percent on loans longer than nine years.
Do a statewide search. States have usury laws for the highest rate of interest you can charge on personal loans. This was done to reign in predators and loan sharks.
What type of credit risk is being taking on? That should also dictate how much interest is assessed. If you as the borrower are a good credit risk (you have the ability to pay and the assets to back it up) then the interest charged should be at the lower end of the spectrum and vice versa.
3. Scheduling Repayment Terms
When you sit down to create a schedule for your repayment, think first about what you can afford, and create a schedule that makes keeping up with your payments possible. With private loans you have the option of designing a repayment plan that is more in line with the business’ expected profits. A promissory note usually requires making that first payment in 30 days. But you could have a six month grace period after which point regular payments are made with an interest-only agreement.
The legal and practical terms of promissory notes can vary considerably, but the most important thing is to set a repayment plan that’s right for you. These are the types of repayment schedules to consider:
1. Amortized payment: You pay the same amount monthly or annually for a specified number of months or years. Part of the payment goes toward the interest and the rest goes toward principal.
2. Interest only payment and final balloon payment: You make regular payments of interest only over a number of months or years. However, the principal does not decrease. At the end of the loan, you must make a final payment to repay the principal and remaining interest.
3. Single payment of principal and interest: You can opt to pay the loan off all at once and avoid regular ongoing payments. At a specified future date, you would pay the entire principal amount and accrued interest. This is best for short-term loans.
4. Pledging Security
The advantage of borrowing money is that you don’t have to give up equity ownership in the business. You just have a financial obligation to pay your debt. However, sometimes a lender may want a security agreement, meaning that you are pledging or offering some type of collateral.
“If you are going to offer collateral than that needs to be listed on the note and the terms under which if you go into default what happens to the collateral to satisfy the obligation,” says Freeman. “And it needs to also clearly spell out that if the collateral is liquidated for more than what is owed on the note then who get the excess.”
Once you agree on the loan terms, be aware if you are signing on behalf of the business or yourself, says Freeman. “Are you personally liable for the loan versus signing it as a representative of your business entity whether it is a corporation or LLC?”
5. Handling Missed Payments or Loan Default
You don’t have to be an entity; any individual can garnish another person’s business and personal bank accounts for failure to payback a loan. Once a borrower defaults and property or business assets are pledged, a lender can take legal action in terms of a lawsuit. The lender would go to court and get a judgment for attachment of property and force a sale to satisfy the debt. Seizing furniture or business equipment which can be sold to satisfy the debt is also recourse.
You have to be as specific as possible. “Sometimes a note will state that once a payment is missed then the loan is accelerated and the entire amount becomes due at that point,” adds Freeman. Make sure there is a clause that says there is no prepayment penalty.
Lastly consider having the completed promissory note witnessed by a notary.

Google knol

How to Write A Promissory Note

Every entrepreneur at one time or another has probably worried over presenting a brilliant business concept to a family member, friend or colleague hoping to get a check for $12,000 for the business. Money from family, friends or acquaintances is often the fastest and cheapest source of capital available to budding entrepreneurs. These types of loans account for more than 50 percent of all start-up business investment dollars.

Banks provide their own promissory note forms, but if you borrow money from an individual, you’ll need to come up with one on your own. There are emotional pitfalls to loans between family and friends, along with financial risks and administrative requirements. There are websites such as www.One2OneLending.com that will guide you through the process of creating a legally binding promissory note.

Often, small business owners fail to follow the basic but important lending guidelines when they borrow from an individual. This can result not only in any number of personal conflicts but also tax difficulties.

Documenting the loan can do no harm, and it can head off misunderstandings about whether the money is a loan or a gift. With a gift no repayment is expected, a loan requires repayment, while an equity investment is in return for shared ownership.

The obvious reason to hammer out all the details of the loan in writing is to keep harmony. Second, it becomes a taxing situation if you can’t prove the loan is formal and legal. Many entrepreneurs have been dragged into IRA audits over personal loans.

Let’s say you deposit a $25,000 check from your relative; your bank automatically informs the IRS about the deposit. In fact, all deposits over $10,000 are reported to the IRS. When the deposit does not show up on your personal or business taxes as income, the IRS will want to know why.

Always keep in mind this is debt obligation. A promissory note means that by nature you have the money to make payments on the loan. Be sure to have the cash flow to service the debt. If you have uneven cash flow you should not enter into a promissory note; perhaps you should look into an equity arrangement.

Treat a personal loan as carefully and as formally as any other business transaction. This and all other information about promissory Notes and their benefit can be found in the Resource Center at www.One2Onelending.com.

5 Key Aspects to Writing A Promissory Note:

1. Create a Promissory Note

A promissory note can be a do-it-yourself document. It is a simple contract whereby the borrower creates a note promising to pay the money back by a certain date.

There are free promissory notes or personal loan agreement forms available online. But also take a look at forms in One2OneLending.com.

Most of the time you can find a form that fits your situation. If there is something unusual about the repayment terms, then it may make sense to have the note reviewed by a lawyer.

The need for a lawyer rises with the more money you are trying to borrow. For a $1,000 note it doesn’t make economic sense to hire an attorney. But if you are talking more than tens of thousands of dollars consider consulting an attorney.

A promissory note basically includes the name of both parties (lender and borrower), date of the loan, the amount, the date the loan will be repaid in full, frequency of loan payments, the interest rate charged on the loan payments, and any security agreement.

2. Charging Interest

There is no legal limit to the amount you can borrow, it can be anywhere from $1,000 or $1 million. However, there are guidelines about charging interest. The lender must charge an interest rate that reflects fair market value. This has to be at least the applicable federal rate, which is another of layer of scrutiny the IRS uses to determine if this is really a gift or a loan. You can find at list of rates at the IRS.gov. The AFR is adjusted monthly and currently ranges from around 0.7 percent on loans of three years or less to under 4.5 percent on loans longer than nine years.

Do a statewide search. States have usury laws for the highest rate of interest you can charge on personal loans. This was done to reign in predators and loan sharks.

What type of credit risk is being taking on? That should also dictate how much interest is assessed. If you as the borrower are a good credit risk (you have the ability to pay and the assets to back it up) then the interest charged should be at the lower end of the spectrum and vice versa, Freeman explains.

3. Scheduling Repayment Terms

When you sit down to create a schedule for your repayment, think first about what you can afford, and create a schedule that makes keeping up with your payments possible. With private loans you have the option of designing a repayment plan that is more in line with the business’ expected profits. A promissory note usually requires making that first payment in 30 days. But you could have a six month grace period after which point regular payments are made with an interest-only agreement.

The legal and practical terms of promissory notes can vary considerably, but the most important thing is to set a repayment plan that’s right for you. These are the types of repayment schedules to consider:

1. Amortized payment: You pay the same amount monthly or annually for a specified number of months or years. Part of the payment goes toward the interest and the rest goes toward principal.

2. Interest only payment and final balloon payment: You make regular payments of interest only over a number of months or years. However, the principal does not decrease. At the end of the loan, you must make a final payment to repay the principal and remaining interest.

3. Single payment of principal and interest: You can opt to pay the loan off all at once and avoid regular ongoing payments. At a specified future date, you would pay the entire principal amount and accrued interest. This is best for short-term loans.

4. Pledging Security

The advantage of borrowing money is that you don’t have to give up equity ownership in the business. You just have a financial obligation to pay your debt. However, sometimes a lender may want a security agreement, meaning that you are pledging or offering some type of collateral.

“If you are going to offer collateral than that needs to be listed on the note and the terms under which if you go into default what happens to the collateral to satisfy the obligation,” says Freeman. “And it needs to also clearly spell out that if the collateral is liquidated for more than what is owed on the note then who get the excess.”

Once you agree on the loan terms, be aware if you are signing on behalf of the business or yourself, says Freeman. “Are you personally liable for the loan versus signing it as a representative of your business entity whether it is a corporation or LLC?”

5. Handling Missed Payments or Loan Default

You don’t have to be an entity; any individual can garnish another person’s business and personal bank accounts for failure to payback a loan. Once a borrower defaults and property or business assets are pledged, a lender can take legal action in terms of a lawsuit. The lender would go to court and get a judgment for attachment of property and force a sale to satisfy the debt. Seizing furniture or business equipment which can be sold to satisfy the debt is also recourse.

You have to be as specific as possible. “Sometimes a note will state that once a payment is missed then the loan is accelerated and the entire amount becomes due at that point,” adds Freeman. Make sure there is a clause that says there is no prepayment penalty.

Lastly consider having the completed promissory note witnessed by a notary.

How to get a friend or family member to pay you back

Many people have loaned money to friends or family members. Chances are, they haven’t paid you according to your understanding. If you are lucky, you used a company such as One2One Lending to help you get your agreement in writing in the form of a promissory note. If you have a family member or friend who won’t pay you back whether or not you have created a promissory note, here are some ideas for how to get your payments back on track.
Create an understanding of where your loan stands now. Show exactly how much the borrower can afford to pay. This will let the (you) know that they are realistic and want to make the payments and when you should to expect them.
Talk to them about your interest in accepting payments. Sit down with the friend or family member and put an agreement in writing that they will pay you back in a set number of payments at specified times. This way, you’re adding structure to the agreement, and you’ll at least be getting something back. You also will not feel that it is wrong to nagging them about payment deadlines that have been agreed upon.
Be Persistent. If you’re starting to think that they will never have the money to repay you, and then get something else out of it. Think of it as security for the loan – something of equal value. This is a great way to let them off the hook for the money, but still receive some value for your efforts.
Give the money to them by forgiving the loan. If never getting the money back isn’t going to ruin your relationship, then just gift the money to them. You’ll feel good about it, the thoughts will be out of your head, and you can move on. If you’re not in a financial situation to give the money away without the expectation of getting it back, then you probably should not have loaned the money to them in the first place.
Loans between family members can ultimately sour a relationship and many families don’t talk to each other because of loans gone bad. Make sure that if you are ever moving ahead to help a friend or family member – get it is writing. With the help of on line services like One2One Lending it is not intimidating.

Promissory Note Forms: Advantages For Business Owners

Most people have the need of a promissory note form at some point during their business or personal dealings. For example, you might sell a painting from you estate. If you lend money to a family member it is important that you have an agreement that covers all the important points upon which you and the other party have agree. These and many other types of common documents need to have standardized wording. Here are a few of the reasons why getting your documents prepared and printed online with One2One Lending makes good sense.
Small business owners use many promissory note documents in their transactions. Some online forms that are available are related to a particular type of business. If you use a standard form that has the entire promissory note wording, your business will be perceived as responsible and professional. Novices who use hand-written or improperly prepared documents may find that they didn’t cover all the necessary terms in preparing the forms.
A document prepared by an attorney will have the required wording and include all the necessary components. If the document is technically correct, you are less likely to get into trouble with your promissory note later on. If you have a promissory note from One2One Lending and are still uncertain, take the prepared form to an attorney and ask for a review. This method will still save you money, as it requires less attorney time to review.
Even the simplest form prepared by an attorney can be very expensive. Attorneys typically charge by the hour and bill in fifteen minute segments. So a form that takes only a couple minutes to locate and print may end up costing you significant money. Using online forms also saves you time, since you don’t have to go to the attorney’s office, set up an appointment and return a second time to pick up the completed documents.
When you use online services, it’s easier than explaining to an attorney what it is you want prepared. Online documents allow you to receive a finished product that fits your exact circumstances. With online forms, you answer a few questions, review the completed document online and print the copy for your use.
The forms are completed seamlessly online so that the printed product appears to be custom prepared with your information included. The document looks professional. You won’t have to use a pre-printed form and fill in blanks or cross out sections that don’t apply.
Online promissory note forms make a lot of sense in many situations. The document you receive will have all the needed promissory note terms so that it is precise. It takes only moments to have a document that is specific to your own needs.

Borrowing from Friends and Family - Put it in Writing

Borrowing from friends, family? Put terms in writing - a great article by
By Jayne O'Donnell, USA TODAY

Why pay a bank a high interest rate to borrow money on credit cards when you can borrow from your family for much less?

This is the question that is the basis for companies like One2One Lending. One2One offers the private lender all of the tools and resources to complete a successful loan – without the fees associated with lawyers. Through its website, www.One2One Lending.com the company is the leading provider of Private Lending tools such as:

•Promissory Note Agreements
•Sample Loan Forms
•Private Loan Agreements
•Simple Loan Contracts
A typical story of a one to one customer is Jimmy Z from Long Island, New York. “I was looking for a do-it-myself promissory note to borrow some money for my new card shop. One2One’s website was easy to use and in no time I set up a promissory note with a friend in the business. We agreed on the interest rate and the loan payment amount, and then we put our agreement in writing.”

One2One Lending helps out new business owners who would have put thousands of dollars on their credit cards at high interest rates to fund their new businesses. Instead, they are able to borrow money from family members at a much lower rate and keep the money in the family.

One2One Lending empowers lending among family members and provides people with funding alternatives to high interest rates and difficult banks. If you’re paying high interest rates on business capital or any kind of loan and a family member might consider helping you out One2One’s website will provide the resources and tools to help establish a successful private loan.

What is a Short Term Personal Loan?

One2OneLending.com

A personal loan is an amount of money that you borrow for a specified length of time at a certain interest rate. It is a fast and easy way to get a cash advance for specific purposes. Personal loans can be installment loans such as a car loan or a demand loan. With an installment loan the borrower makes periodic payments (monthly, quarterly, etc.) that reduce the amount of the loan until it is paid in full with interest. A demand loan has an interest rate but does not have specified monthly payments, however the lender can demand payment from the borrower at anytime.

There are many reasons why people take out a personal loan. Some of the most popular reasons are home improvement and debt consolidation. Sometimes the loan is taken out for a major purchase such as an appliance or a family vacation. There are many reasons why people borrow money. Personal loans are very flexible and are designed to meet these many reasons.

The borrower should have a steady income source, and have the capability of repaying the loan principal and interest according to the repayment schedule. The maximum amount of a short-term personal loan and the period of repayment vary. The maximum amount of the loan is usually based on the purpose of the loan and the borrower’s ability to repay the loan. The rate of interest is generally based upon market interest rates and can be found on websites such as: http://www.one2onelending.com/. Personal loans are often limited to 5 years but can be extended up to 10 or 15 years for purposes such as home improvements.

There are companies that specialize in making personal loans for specific purposes. In you want to finance a car, you may look at some of the car credit companies who offer a number of deals with incentives such as lower interest rate and less down payment amounts when you take a loan out with them. There are similar personal loan providers for home improvements and debt consolidation, etc.

Normally it is easier to apply for a personal loan than a mortgage loan. Less paperwork and lower income verification standards usually means that the loan approval process is considerably shorter than a mortgage loan