When taking out a loan for start up cash for a business, the bank or mortgage company requires the borrower to sign a commercial note, also known as promissory notes. This legal document describes the repayment terms that both parties agree upon. In many cases, promissory notes are also signed when a person borrows money from a family member or friend.

Creating a Commercial Note

The most important process when creating a commercial note, whether through a bank, mortgage company, or with a friend, is deciding on the repayment terms. There are several approaches one could take, each having its own advantages and disadvantages. Once a repayment schedule is determined, the parties obtain a promissory note form.

Amortized payments are a type of repayment that many people have dealt with, either as a car loan or a home mortgage. A period of time is set, for which the loan is paid in monthly installments, usually the same amount each month. With each payment, part of it goes toward principal, and part of it goes toward interest. Those creating a commercial loan without the help of a bank may use software to figure out payments.

Sometimes, the parties may decide on smaller monthly payments for a shorter period of time, followed by a large balloon payment that pays off the rest of the balance. The earlier monthly payments can be equal monthly payments that include both interest and principal, or they can be just interest payments. Commercial notes signed between friends may even establish a date in the future for one single payment in full.