A promissory note is a legal instrument, in which one party (who is the borrower) promises in writing to pay a determinate sum of money to the other (the lender), either at a determinable time in future or on the demand of the lender, under certain agreed terms and conditions. The note is a debt instrument issued to the lender to show the indebtedness of the borrower.
A promissory note contains all the terms pertaining to the indebtedness, such as the principal amount, interest rate, the date of repayment, the security (if any) etc.
A Loan Agreement is also similar to the promissory, however, it is more complex than the promissory note and it is usually used in situations that involve a substantial amount of money.
How to use the document
This document can be used for short term financing - for example, when a company buys many products from its creditors, it may issue a promissory note to the creditors and pay the price for the products at a later date. Also, a party may collect loan from the bank and issue the promissory note to the bank.
The document should be signed by both parties and issued to the lender(s). If any of the parties is a company, the company seal should be affixed on the document and either 2 (two) directors or 1 (one) director and 1 (one) company secretary must sign the document. If any of the parties is an individual, the party should sign and given to a witness to fill out his/her particulars and sign the document.
The lender(s) must return the promissory note to the borrower(s) once the issuer repays the loan or the money owed.
The note is a bill of exchange, so the Bill of Exchange Act is the applicable law.
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