Secured Promissory Note

Secured Promissory Note

Draft an enforceable secured promissory note for a commercial loan with collateral-backed repayment.

Quick Start

Gather before drafting:

1. Parties — borrower and lender legal names, entity types, states, addresses, authorized signatories.
2. Deal terms — principal, interest structure (fixed/variable, index, margin, floor/cap), day-count convention, payment schedule, maturity, prepayment, fees, default rate.
3. Collateral — description with sufficient detail for UCC Article 9; filing jurisdictions (debtor location, fixture/real property).
4. Governing law — state, venue, dispute resolution preference.
5. Related documents — security agreement, guaranty, subordination/intercreditor, board/manager approvals.

Workflow

1. Collect intake fields; flag unresolved items before drafting.
2. Draft using the section outline and template below.
3. Insert optional clauses only when deal-specific.
4. Run the review checklist.

Intake Fields

Section Outline

1. Title, date, parties
2. Promise to pay; principal; use of proceeds
3. Interest rate; day-count; default rate; usury savings clause
4. Payment schedule; application waterfall; late charges; non-business days
5. Prepayment terms and penalties
6. Collateral grant; proceeds; security agreement reference
7. Perfection authorization (UCC-1 filings)
8. Representations and warranties
9. Affirmative and negative covenants
10. Events of default; notice and cure periods
11. Remedies; acceleration; UCC Article 9 enforcement; costs/fees
12. Waivers (presentment, demand, notice)
13. Governing law; venue; jury trial waiver or ADR
14. Notices; assignments; successors; integration; severability
15. Signature blocks and execution

Collateral Schedule (Exhibit A)

Category:
Specific Description:
Location:
Title/Registration Data (if applicable):

Optional Clauses

Include only when applicable:

• Balloon payment provision
• Interest-only period
• Cross-default to other material debt
• Judgment default threshold
• MAC clause
• Subordination / intercreditor references
• Cash dominion or lockbox

Review Checklist

• [ ] Defined terms used consistently throughout
• [ ] Interest and fees within applicable usury limits
• [ ] Collateral description sufficient for UCC filing
• [ ] Cure periods aligned with lender policy
• [ ] Notice addresses and delivery methods complete
• [ ] Signatory authority confirmed

Pitfalls

• Usury — always include a usury savings clause; verify default interest and late fees against governing-state limits.
• Real property collateral — reference the mortgage or deed of trust; the note alone is insufficient.
• Titled assets / IP — add perfection steps matching title or federal registration practices.
• Default categories — distinguish monetary vs. non-monetary defaults with explicit cure periods.
• Remedies — must include acceleration and Article 9 disposition rights with commercially reasonable notice.
• Consumer loans — omit consumer-law disclosures unless the loan is consumer-purpose or to an individual borrower.
• Assignments — borrower assignment typically prohibited; lender assignment typically permitted with notice.
• Jury trial waiver — include only if enforceable in governing jurisdiction and parties are sophisticated.