Promissory Note

A promissory note is generally issued by a company in exchange for cash (i.e., a loan). It may also be issued by a financial institution. A promissory note is a promise to pay back a loan at a future date. Promissory notes are not as formal as loans and not as informal as IOUs. They sit somewhere in the middle. Terms of the promissory note (interest, due date, principal, signatures, etc.) are worked out between the lender and borrower.

Promissory notes can be sold to other companies. In order to do this, the note must be unconditional and salable. Such notes are also called negotiable instruments.

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