There was a time when a handshake was as good as a contract. In some cases, the deal might have involved the borrowing of a small amount of seed money to get a small business off the ground. In others, it might have been a local storeowner extending a line of credit to friends and neighbors.
These days, the handshake doesn’t fly. If a lender really has an expectation of being repaid, the terms of the agreement need to be written down and properly notarized as called for by the laws in a given state. In North Carolina, an IOU with a signature written on some scrap paper isn’t likely to be enforceable, meaning that collection could be a challenge.
To be sure your interests are protected and will have the force of law in the event collection efforts are required, you will want to be sure that a promissory note is properly drafted. It should spell put the amount lent, the amount expected to be repaid and the methods by which repayment are to occur.
Generally speaking, there are four types of payment schedules possible. They include amortized payment plans such as are typically used for car loans; single payments that involve a one-lump-sum payment covering principal and interest at a designated future date; monthly payments with a balloon payment; or interest-only payments with a balloon.
Some may be tempted to draft a promissory note without the benefit of legal counsel. But to be sure that the details of the agreement are spelled out clearly for both lender and borrower, and to be confident that the terms will stand up in court it’s important to seek the help of an experienced attorney. To learn more, visit our webpage on this topic.