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Secured Promissory Note

Douglas Bean
by Douglas Bean, J.D.

The Promissory Note is the instrument that lays out the exact terms of a loan including security, repayment, interest rate, and penalties.


This Promissory Note is "secured". What that means is that the loan is backed by a piece of property or other asset as collateral. In these of the sale of a business, the promissory note is "secured" by the business itself, including all the assets the business owns, whether tangible or intangible. This gives the lending part recourse in the event the promissory note is not repaid.

Related: Seller Financing Agreement (with Secured Promissory Note)

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$[AMOUNT] Date: _________________

For value received, the undersigned [Insert Borrower name] (the "Borrower"), at [Insert Borrower address], [Insert borrower city], [Country/State], [Insert Borrower postal code], promises to pay to the order of [Insert lender company name] (the "Lender"), at [Insert Lender's address], [Insert Lender's city], [Country/State] [Insert Lender's postal code] (or at such other place as the Lender may designate in writing), the following:

Promissory Note Amount: $_________

Interest: Interest from [insert start date], on the unpaid principal at the rate of __________% per annum.


1.1. Payments

The unpaid principal and accrued interest shall be payable in monthly installments of $_____, beginning on [insert date], and continuing until [insert date], (the "Due Date").

Unpaid principal after the Due Date shown below shall accrue interest at a rate of _____% annually until paid.

Payments shall be paid in the amounts and times set forth in the Amortization Schedule attached hereto as Exhibit A.

1.2. Application of Payments

All payments on this Note shall be applied first in payment of accrued interest and any remainder in payment of principal.

1.3. Late Fee

The Borrower promises to pay a late charge of $__________ for each installment that remains unpaid more than _______ day(s) after its Due Date. This late charge shall be paid as liquidated damages in lieu of actual damages, and not as a penalty. Payment of such late charge shall, under no circumstances, be construed to cure any default arising from or relating to such late payment.

1.4. Acceleration of Debt

If any payment obligation under this Note is not paid when due, the remaining unpaid principal balance and any accrued interest shall become due immediately at the option of the Lender.


This Note is secured by the property described in paragraph 2, 3, and 4 of the attached Financing Agreement executed on [Insert Date Financing Agreement was executed]

The Lender is not required to rely on the above security instrument and the assets secured therein for the payment of this Note in the case of default, but may proceed directly against the Borrower.


The Borrower reserves the right to prepay this Note (in whole or in part) prior to the Due Date with no prepayment penalty. Any such prepayment shall be applied against the installments of principal due under this note in the inverse order of their maturity and shall be accompanied by payment of accrued interest on the amount prepaid to the date of prepayment.


If any payment obligation under this Note is not paid when due, the Borrower promises to pay all costs of collection, including reasonable attorney fees, whether or not a lawsuit is commenced as part of the collection process.


If any of the following events of default occur, this Note and any other obligations of the Borrower to the Lender, shall become due immediately, without demand or notice:

  1. the failure of the Borrower to pay the principal and any accrued interest when due;
  2. the liquidation, dissolution, incompetency or death of the Borrower;
  3. the filing of bankruptcy proceedings involving the Borrower as a debtor;
  4. the application for the appointment of a receiver for the Borrower;
  5. the making of a general assignment for the benefit of the Borrower's creditors;
  6. the insolvency of the Borrower;
  7. a misrepresentation by the Borrower to the Lender for the purpose of obtaining or extending credit; or
  8. the sale of a material portion of the business or assets of the Borrower.

In addition, the Borrower shall be in default if there is a sale, transfer, assignment, or any other disposition of any assets pledged as security for the payment of this Note, or if there is a default in any security agreement which secures this Note.


If any one or more of the provisions of this Note are determined to be unenforceable, in whole or in part, for any reason, the remaining provisions shall remain fully operative.


All payments of principal and interest on this Note shall be paid in the legal currency of the United States. The Borrower waives presentment for payment, protest, and notice of protest and demand of this Note.

No delay in enforcing any right of the Lender under this Note, or assignment by Lender of this Note, or failure to accelerate the debt evidenced hereby by reason of default in the payment of a monthly installment or the acceptance of a past-due installment shall be construed as a waiver of the right of Lender to thereafter insist upon strict compliance with the terms of this Note without notice being given to Borrower. All rights of the Lender under this Note are cumulative and may be exercised concurrently or consecutively at the Lender's option.

This note may not be amended without the written approval of the holder.


This Note shall be construed in accordance with the laws of the State of _________________.


This Note shall be signed by [Insert borrower name] and [Insert lender's representative's name], on behalf of [Insert lender company name].

IN WITNESS WHEREOF, this Agreement has been executed and delivered in the manner prescribed by law as of the date first written above.

Signed this _____ day of _______________, _____, at ___________________________,
_________________________ .


[Insert borrower name]


[Insert borrower name]


[Insert lender company name]


[Insert lender's representative's name]



For value received, the above Note is assigned and transferred to

____________________________________________, ("Assignee") of

_________________________, _________________________,




Dated: _________________________

By: ____________________________________________________

Exhibit A

Amortization Schedule


Interest Amount

Principal Amount










Video: Promissory Notes in the Sale of a Business | by Paul SavagePacific at Business Brokers

Explanatory Notes

Here is some information about a few key paragraphs of this document:

  1. Acceleration of Debt: It’s important to understand the consequences of default under a promissory note. If the debtor (the borrower) fails to make timely payments, or breaches any of the other terms of the Financing Agreement, the creditor (the seller) can make the entire amount of the Promissory Note due and payable immediately. It’s important to carefully scrutinize what is required of the debtor before entering into this agreement.
  2. Security: This describes what property is being held as collateral to secure this promissory note. Remember, in most cases, this includes all property owned by the business, both tangible (e.g. real estate) and intangible (e.g. patents, trademarks).
  3. Default: The default paragraph outlines what conditions trigger a default, or breach, of this agreement. It’s important to carefully read these paragraphs to understand exactly what events to watch out for. The default provisions in this agreement focus on two areas: failure to make payments per the terms of the agreement and insolvency (bankruptcy).
  4. Sample Amortization Schedule: This document shows an example of the breakdown of all payments under the loan and is common to include with a promissory note. The benefit of the document is to show the borrower exactly how loan payments are allocated between interest and principal, the remaining balance on the loan, and expected payment due dates.

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