Contract Glossary

Promissory Note

Definition

A written, signed promise to pay a specific amount of money to a specific person or entity, either on demand or by a set date. It's the simplest form of a debt instrument, one party promises to pay, and the other holds the note.

In Practice

If a friend lends you $20,000 and you sign a promissory note, that note is their proof of the debt and its terms, interest rate, repayment schedule, what happens if you miss payments. Startups use convertible promissory notes to borrow money from early investors, with the debt converting to equity in a future funding round.