Promissory Note

What is a promissory note?

A promissory note is a written, signed, unconditional promise by one person (the promissor) to pay a fixed sum of money to another person (the payee), either on demand or at a specified future date. A promissory note is one of the oldest and most straightforward financial documents in English law.

In plain English: the maker writes down, clearly and without conditions, how much they owe, to whom, and when they will pay it – and they sign it. That is a promissory note.

Unlike a loan agreement, which documents the terms of a lending arrangement from both sides, a promissory note is a one-sided document — only the maker (the borrower or debtor) signs it. It is the maker’s formal written promise to pay, and it is legally binding as soon as it is delivered to the payee.

What makes a promissory note legally valid in England and Wales?

For a document to qualify as a valid promissory note under the Bills of Exchange Act 1882, it must meet all of the following statutory requirements:

• be a written document;
• be signed by a promissor;
• contain an unconditional promise to pay;
• specify the loan amount in pounds only;
• identify the payee (i.e., a person to whom the loan should be repaid);
• be delivered in person to the payee.

Failure to include at least one of the mandatory requirements listed above will automatically result in a document being not valid.

When should you use this promissory note template UK?

A promissory note template is the right document in the following situations:

• Family member promissory note. This document can be helpful for quickly formalising lending arrangements between family members or close relatives. The document does not entail any specific formalities therefore can be quickly signed.
• Personal loan between friends. This template can be used to record a promise to pay between friends.
• Settling a debt. Where there is an existing informal debt between the parties, this loan promissory note template can be used to formalise relations in writing.
• Accounting & Recordkeeping. Many businesses and individuals simply prefer to maintain proper records of their financial transactions. Therefore, having a simple written document even for an informal lending arrangement is a smart legal choice.

Common mistakes to avoid when drafting a promissory note template

If you are creating a promissory note template UK from scratch, read below for the most common mistakes many individuals and businesses make when drafting this type of document for the first time:

Mistake 1: Including a condition

The legal nature of a promissory note is that this is an unconditional promise of a borrower to pay back the loan on the agreed date and time. The repayment of the loan cannot be subject to any other conditions or circumstances.

Therefore, it is recommended to exclude any wording from the promissory note loan agreement template saying “subject to“, “provided that“, or “on condition that“.

Mistake 2: Failing to deliver the signed note

A borrower, also known as a promissor, has to deliver the signed document in person to the payee. This is a direct requirement under the Bills of Exchange Act 1882. If a promissory note is not being delivered, it is automatically considered incomplete.

Mistake 3: Confusing the promissory note with a loan agreement

A loan agreement and promissory note template are documents that deal with lending money between individuals and corporate entities across the UK. However, these two documents have different internal structures and serve different legal purposes. If you are willing to have a robust document with a list of warranties, a complex repayment schedule and a guarantee clause, it is better to choose a loan agreement template instead.

Why use FasterDraft for your promissory note template?

By customising this document with FasterDraft, you get a template with the following benefits:

• a document that is created by qualified UK solicitors;
• a template that fully aligns with the basic principles of English law and the Limitations Act 1980;
• a document with a simple structure and written in plain English;
• a template that is quick to customise;
• a document available for instant digital download.

How to use this template?

To get a fully customisable document template, follow a few easy steps below:

1. Click the “Create Document” button.
2. Answer simple questions in the form.
3. Select a template’s format – promissory note template PDF or Word.
4. E-sign the document.
5. Make a payment.

The document is ready for instant digital download immediately after the purchase.