A promissory note is a legal agreement in which one party (issuer) promises to pay a specified sum of money to another party (payee) on a future date or on the payee’s demand should certain conditions be met.
Sometimes also referred to as a note payable, the promissory note is a debt instrument and would include material information such as:
- Legal names of people involved in the agreement
- Principal amount
- Interest rate if applicable
- Terms of repayment
- Maturity date if applicable
It is basically a promise put into writing with legal repercussions when the promises are not kept.
They are often used by investors when there is a lack of trust between parties.
The presence of a promissory note would act as an assurance that the other party would keep his promises to pay.
Enforcement however, can be problematic.