Promissory Notes

Promissory Note - Lump Sum Payment Example

When the borrower and the lender want to keep the repayment schedule simple, a Lump-Sum Payment Promissory Note may fit their needs. With this type of Promissory Note, the borrower won’t make monthly or yearly installment payments. The principal and the interest is payable in a single payment (lump-sum payment) on the date the Note is due.

Here is a simple example when a Promissory Note - Lump Sum Payment With Interest can be used:

John wants to borrow $5,000 from one of his close friends to start his business. His cash flow will be tight for the next few months, but he expects to receive another loan from Small Business Administration (SBA) within six months.

In this case, a Promissory Note with Lump Sum Payment will fit John’s needs. He doesn’t have to make monthly installment payments. He can repay the principal together with the interest when he receives the loan from the SBA in six months.

John and his friend agree that John will pay the total amount due in 6 months in one lump sum payment by using a Promissory Note - Lump Sum Payment With Interest.

Most Promissory Note forms have a stipulation that the borrower can repay the loan before the due date without penalty. John can pay the loan back even before the end of the term if he receives the SBA loan earlier.

Typically, the interest rate used in a Lump-Sum Promissory Note is simple, not compound. If both parties agree on 10% annual interest rate, the interest of $5,000 for six months is $250.