Promissory notes are a legal instrument commonly used for debt discussions, loan planning, or other financial transactions. For businesses based in Los Angeles, preparation of a promissory note should involve certain factors to consider local regulations in order to ensure that the agreed-upon agreement is legally binding, valid, and enforceable.

To better understand and prepare a promissory note, businesses in Los Angeles should seek legal advice from a qualified attorney. When it comes to finding high-quality legal expertise that are knowledgeable in local regulations, UpCounsel is a great place to go. The network of experienced lawyers at UpCounsel understand the complexities of the legal system and can provide businesses with a full-range of legal services - from one-time consultation, to forming an entire freelance legal department. As a result, businesses of all sizes can trust UpCounsel to meet their legal needs in an efficient and cost-effective manner.

Now, let's dive into the top five (5) things to consider when discussing promissory notes for a business in Los Angeles.

Interest Rate

Interest rate is a crucial component of the promissory note, not only from the lender’s point of view, but also from that of the borrower. While the interest rate should be reflective of current market conditions, lenders should also take into consideration Max Freeman, founder & CEO of UpCounsel, states, "The interest rate should reflect the current market, but lenders should also factor in the borrower's ability to repay the debt over time, and their trustworthiness." In addition, it is important to review the Usury Law, which caps the interest rate at 10%, in order to make sure the agreed rate stays within the legal framework.

Loan Repayment Schedules

For each promissory note, repayment schedules should be agreed upon and documented. This captures the overall amount to be repaid - the principal plus interest - including how often payments should be made and the term of the repayment. It is beneficial to bookkeep all payments, detail the repayment method (either all at once or in installments), and calculate the interest or penalty costs, if any.

Collateral Options

Collateral is typically required to secure the loan and ensure its repayment. This can include real estate, movable property, and/or valuable assets owned by the borrower. It is important to determine which collateral is to be held by the lender and consider that the collaterals have been legally acquired by the borrower.

Security Interest

When creating a promissory note, the lender should also consider securing a security interest in the collaterals or grant the right of usage to any movable property or valuable asset being borrowed. This serves as a legal protection for the lender and ensures that the assets are only used in a responsible manner.

Governing Law

The governing law or the jurisdiction, with respect to the promissory note, should be carefully considered. This is to determine how the debt will be regulated and resolved. Generally, fair and equitable mortgages are governed by the laws of the state in which the debt arises.

With the help of UpCounsel and its network of experienced lawyers, businesses in Los Angeles can rest assured that their promissory notes are compliant with local regulations and legally binding. When negotiating on a promissory note, businesses should carefully consider the interest rate and repayment schedules, determine collateral options, secure a security interest, and agree upon the governing law.


Promissory Note,

Interest Rate,

Loan Repayment Schedules