What Is a Note Agreement?
It is similar to a promissory note in the sense that it legally binds one of the parties involved to pay back whatever loan he/she has made with the other party. Making this type of agreement acts as a security measure for the lender as it guarantees that the borrower pays back whatever he/she owes on whatever date that has been agreed upon by both parties. So whenever someone wishes to borrow money from you, always consider preparing a note agreement.
How to Create a Note Agreement?
1. Start By Pointing Out Who Is Involved
It is very important that this type of basic agreement is able to point out which of the parties involved is the borrower and which one is the lender. So what you will need to do is to place their complete names into the document. If required, you can have them provide additional information such as the company they represent, along with their complete address and contact details.
2. Put In Details Regarding the Loan
Much like when making any kind of loan agreement, you will have to include information regarding the amount that the borrower has been given by the lender. Make sure to write down the exact figure to ensure that the borrower is paid back the right amount he/she is owed. You must then provide the repayment date. The payment can either be in bulk or it can be done periodically over a certain period of time. When writing down dates, be sure to include the month, date, and year. Lastly, include information on the interest rate. These are usually calculated based on the terms of the annual percentage rate or APR, meaning that you'll have to know those figures in order to provide a fair rate of interest.
3. Consider Including a Clause Concerning Collateral Hold
This will depend entirely on the borrow as he/she may create a list of goods/services as a guarantee for the debt that needs to be paid by. When listing down whatever items are to be included, it is important that you provide their full legal description.
4. Place Terms for Late or Missed Payments
It is here where you will point out how matters concerning later or missed payments should be resolved. If the borrower has to pay a fee, then specify the amount that has to be paid and the number of days he/she is given to make the payment. If it involves the transfer ownership rights on certain goods until the payment is made, then remember that you have to provide the full legal description for every item.
5. Provide Default Terms
Make sure that there are statements that tell the borrower what exactly will happen should he/she fail to pay back the loan. How the matter will be solved must be discussed by the parties involved as they may decide to handle it themselves or bring up the matter to court.
6. Place Spaces for Signatures
At the end of the legal document, there must be spaces where the parties involved can place their complete name and signatures. Having both shows that they are willing to accept all the terms and push through with the exchange. Don't forget to include a space to place the date in which the document is signed.