Posted on January 11, 2012
The Madison-are LION network is starting to do some deals! (Very exciting.)
Many of our investors and businesses are new to local investing, and wonder, “How do I execute the investment?”
I’m a big believer in the KISS principle, “Keep it Simple, Silly.” So, if the investor is simply making a loan that the business will repay later, this LION Sample Promissory Note can help you get started. [LION is not responsible for any agreements between Lenders and Borrowers.]
What is a “promissory note?”
If you have a car loan or a mortgage, you’ve already signed a promissory note. The word “promissory” has the same root as the word “promise.” Promissory means “intention to pay.” A promissory note is a “promise” between a lender and borrower. The lender promises to loan the money according to the terms in the Promissory Note, and the borrower promises to repay the money according to the terms in the agreement.
It’s as simple as that.
Please remember that all Promissory Notes should include a section that indicates whether the note is “secured” or “unsecured.”
- A secured loan is tied to collateral. If the borrower can’t repay the loan, they offer some collateral, e.g. their house, inventory, etc. that they can offer to the borrower as payment for the loan. For example, in the case of a mortgage, your house is the collateral; if you can’t repay your mortgage, the bank takes your house.
- An unsecured loan doesn’t have any collateral behind it. These are considered riskier loans, and usually require higher interest rates to offset the risk to the investor.
Rebecca Ryan is a Madison, Wisconsin based entrepreneur, investor, and writer. She facilitates the Madison/Dane County LION group, and launched LionInvesting.com to help educate others about LION and Slow Money concepts.