People often loan money to businesses, friends and acquaintances based on a handshake and an understanding that the borrower will repay the loan. Unfortunately these deals do not always work out. The borrower may stop making payments. The parties may have a disagreement about the amount owed or how much should be paid each month. A borrower may claim the loan was a “gift” and that he or she does not owe anything. Without a written agreement, these disputes can quickly become a fight about one person’s word over the other. A promissory note is good way to avoid these disputes before they start.
A promissory note is a written agreement in which one person promises to pay a specific amount of money to another person based on a set of terms. Often times the borrower will want to repay the loan in installments. A promissory note will clearly state how much the borrower is required to pay each month and how many months it will take to pay off the loan in full. It should include the interest rate of the loan and explain what will happen if the borrower defaults.
Although you may feel uncomfortable asking someone to sign an agreement before loaning them money, it can prevent a much bigger problem such as a lawsuit down the road if there is a disagreement about the loan. It can also give both parties peace of mind knowing exactly what is expected from them.
To learn how the experienced attorneys at Chauvel & Glatt can help you, contact us today.