Promissory Note

In a promissory note, one party—the note’s issuer or manufacturer in paper pays the second party—the note’s payee—a certain sum of money, either right away or at a preset later date. The principal amount, interest rate, maturity date, date and location of issuance, and the issuer’s signature are all commonly included in a promissory note.

Although financial institutions may issue them—you might be asked to sign one in order to obtain a small personal loan, for example—promissory notes typically enable businesses and people to obtain financing from sources other than banks.

This source can be a person or a business that is prepared to carry the note (and provide the funding) under the specified conditions. Promissory notes, in essence, provide anyone with the ability to act as a lender.