Promissory Note Template (UK): Example And Key Clauses To Include

If you’re lending money to another business (or borrowing money to keep cash flow moving), it’s easy to want something quick in writing to confirm what’s been agreed.

That’s where a promissory note can be useful. It’s often simpler than a full loan contract, but still gives you a written promise to pay on clear terms.

In this guide, we’ll walk you through what a promissory note is in the UK, when it works well (and when it doesn’t), what to include, and a promissory note example (UK) you can adapt for your business.

Important note: This is general information for UK businesses, not tailored legal advice. If the amount is significant, security is involved, or there’s any risk of dispute, it’s worth getting the document properly drafted so it protects you from day one.

What Is A Promissory Note (And When Do UK Businesses Use One)?

A promissory note is a written promise by one party (the borrower) to pay a specific sum of money to another party (the lender) either:

• on demand; or
• at a future date (or dates), often with interest.

In practical terms, it’s an IOU with clearer legal structure. For small businesses, promissory notes are commonly used where you want something more formal than an email thread, but you don’t need (or don’t have time for) a long-form agreement.

Common Business Scenarios For Promissory Notes

• Director, shareholder, or founder funding: You lend money to your limited company to cover costs, with repayment later.
• Short-term working capital: A business borrows from another business to bridge a cash flow gap.
• Simple private lending: You lend to a supplier, contractor, or partner business on agreed terms.
• Settlement arrangements: A party agrees to repay a debt in a structured way (though a settlement deed may be more appropriate in many disputes).

If you want a broader comparison between “note-style” documents and more detailed lending contracts, it can help to look at Loan Agreement structures as well.

Promissory Note vs Loan Agreement: What’s The Difference?

Promissory notes are typically more basic. A loan agreement usually goes further and covers things like:

• representations and warranties (promises about the parties and the transaction)
• events of default and enforcement steps
• security (e.g. personal guarantees, charges over assets)
• information rights (e.g. financial reporting)
• more detailed dispute resolution and governing law terms

Put simply: a promissory note can work well when the arrangement is straightforward and trust levels are high. If the stakes are higher, you usually want a proper loan agreement (and sometimes security) rather than relying on a minimal document.

Is A Promissory Note Legally Binding In The UK?

A promissory note can be legally binding in the UK, but enforceability depends on how it’s drafted and how it’s used.

At its core, you’re trying to create a clear, provable obligation to repay money. Under UK contract principles, written agreements are generally enforceable where there’s:

• a clear promise/obligation
• certainty of key terms (how much, when payable, etc.)
• intention to create legal relations (especially important where parties are connected)

Many promissory notes are also drafted to fit the legal definition of a “promissory note” under the Bills of Exchange Act 1882 (for example, a written, unconditional promise to pay a sum certain, signed by the maker, payable on demand or at a fixed/determinable future time, and payable to (or to the order of) a specified person). In practice, most small businesses use them simply as a clear written debt promise rather than something intended to be transferred or traded.

Stamping / evidence point: depending on how the note is structured and used (especially if it is intended to operate as a negotiable instrument), there can be UK stamp duty/stamping formalities that affect whether it can be relied on in court as evidence. This is technical and fact-specific, so if you expect you may need to enforce the note, get advice on whether stamping is required and how to handle it properly.

Do Promissory Notes Need To Be Signed?

Signatures are strongly recommended. A signed note reduces arguments later about whether terms were agreed and by whom.

If the borrower is a company, think carefully about who signs and whether they have authority. If you’re ever unsure about signature formalities, it’s worth checking what’s required for Legal signature requirements in a business context.

Can A Promissory Note Be Done By Email?

Sometimes, yes - an exchange of emails can form a contract if the essentials are there. But “legally possible” and “commercially sensible” aren’t always the same thing.

If you’re relying on messages, you can end up arguing later about:

• what the final agreed terms were
• whether the person replying had authority
• whether key details (like interest or dates) were actually agreed

Also, if you want the note to operate as a formal “promissory note” under the Bills of Exchange Act framework (rather than just a contract debt promise), informal email wording may not meet the required formalities.

As a general rule, get it into one document and have it signed. If you want to understand the broader point, it’s also helpful to know when Email contracts can be enforceable.

What Should A Promissory Note Include? (Checklist For Business Owners)

If you want your promissory note to actually protect your business, it needs more than “I’ll pay you back”. Below is a practical checklist of terms you’ll typically want to include.

1. The Parties (And Their Correct Details)

• Lender: full legal name, address, and (if a company) company number and registered office.
• Borrower: full legal name, address, and company details (if applicable).

For companies, use the registered name, not the trading name (unless you clearly state both).

2. The Principal Amount

This is the exact amount being loaned (e.g. “£25,000”). Avoid vague references like “about £25k” or “up to £25k”. Certainty matters.

3. Interest (If Any) And How It’s Calculated

Interest is optional, but if it applies, be clear about:

• the rate (e.g. 8% per annum)
• whether it’s simple or compound
• when it starts accruing
• when it’s payable (monthly, at maturity, on demand, etc.)

If you’re unsure about charging interest or how to frame it properly, it can help to understand Interest on money owed from a UK business perspective.

4. Repayment Terms

Set out whether the note is:

• Payable on demand: the lender can demand repayment (often with a written notice requirement); or
• Fixed repayment date: a maturity date when the full amount is due; or
• Installments: repayments on a schedule (weekly/monthly).

If you’re doing installments, consider whether a separate payment plan agreement might be more suitable than a simple note. Many businesses prefer a dedicated Payment plan agreement format if repayments are spread out.

5. Default And Late Payment Consequences

This is where many “quick templates” fall short.

At minimum, you should consider addressing:

• what counts as a default (e.g. missed payment, insolvency events)
• default interest (if applicable)
• the lender’s right to demand immediate repayment after default
• recovery of enforcement costs (noting that legal costs recovery is subject to the usual court rules and discretion, and should be drafted carefully)

6. Prepayment (Can The Borrower Repay Early?)

Early repayment can be a good outcome - unless it breaks your commercial expectations (for example, you were relying on interest over a period). Decide whether prepayment is allowed and whether there are any conditions.

7. Governing Law And Jurisdiction

For UK businesses, this is usually “the law of England and Wales” (or Scotland / Northern Ireland, depending on the parties and where you operate), with the courts of that jurisdiction having authority.

8. Signatures And Execution Details

Make sure:

• the borrower signs (and the lender, if your format includes lender acceptance)
• the signer’s name and title are printed clearly
• company signature blocks reflect how the company executes documents (especially for larger or higher-risk loans)

If the note is significant, you may also want to consider whether it should be executed as a deed (this is a technical point and depends on the circumstances - get advice if you’re unsure).

Promissory Note Example (UK) Template

Below is a simple promissory note example (UK) you can use as a starting point. You’ll still want to tailor it to your deal, especially around interest, default, and repayment triggers.

Tip: Keep the language clear and consistent. If you introduce a defined term like “Principal Sum”, use it throughout.

PROMISSORY NOTE

Date: [Insert date]

Parties
Borrower: [Borrower legal name] (Company No. [●]) of [registered office address] (the Borrower)
Lender: [Lender legal name] (Company No. [●]) of [registered office address] (the Lender)

1. Promise To Pay
For value received, the Borrower unconditionally promises to pay to the order of the Lender the principal sum of £[Insert amount] (the Principal Sum) in accordance with this Promissory Note (this Note).

2. Interest
[Choose one]

• No interest: No interest shall accrue on the Principal Sum.
• Interest applies: Interest shall accrue on the outstanding Principal Sum at the rate of [●]% per annum, calculated on a [simple/compound] basis, from and including [insert start date] until the date of payment in full.

3. Repayment
[Choose one]

• On demand: The Principal Sum (together with any accrued interest) shall be payable on demand by the Lender. Any demand must be made in writing and delivered to the Borrower’s registered office (or such other address notified in writing). Payment shall be made within [●] days of receipt of a valid demand.
• Fixed date: The Borrower shall pay the Principal Sum (together with any accrued interest) in full on [Insert maturity date].
• Installments: The Borrower shall pay the Principal Sum (together with any accrued interest) by [monthly/weekly] installments of £[●], payable on the [●] day of each month commencing on [Insert start date], with the balance payable on [Insert final date].

4. Prepayment
The Borrower may prepay all or part of the outstanding amounts under this Note at any time without penalty, provided that any accrued interest to the date of prepayment is paid at the same time.
[Or: prepayment requires Lender consent / includes a fee.]

5. Default
If the Borrower fails to pay any amount due under this Note within [●] days of the due date, the Borrower shall be in default.
Upon default, the Lender may declare all outstanding amounts under this Note immediately due and payable by giving written notice to the Borrower.

6. Costs
The Borrower shall be responsible for the Lender’s reasonable costs of enforcing this Note, including reasonable legal fees, to the extent permitted by law and (where court proceedings are involved) to the extent the court allows.

7. Assignment
The Lender may assign or transfer its rights under this Note to a third party by giving written notice to the Borrower, subject to any applicable legal requirements.
The Borrower may not assign or transfer its obligations under this Note.

8. Governing Law
This Note and any dispute or claim arising out of or in connection with it shall be governed by and construed in accordance with the law of England and Wales, and the courts of England and Wales shall have exclusive jurisdiction.

Signed By The Borrower
Signature: ___________________________
Name: [Insert name]
Title: [Director / Authorised Signatory]
For and on behalf of: [Borrower legal name]

Signed By The Lender (optional but often included)
Signature: ___________________________
Name: [Insert name]
Title: [Director / Authorised Signatory]
For and on behalf of: [Lender legal name]

Important: This promissory note example is intentionally simple. Depending on the amount and risk, you may need additional protections (like security, personal guarantees, or more detailed default provisions). You should also check whether any stamping requirements apply for your particular type of note, especially if you may need to enforce it in court.

Common Mistakes With Promissory Notes (And How To Avoid Them)

Promissory notes often end up in disputes not because the idea is bad, but because the document was too vague or didn’t match what the parties actually intended.

Mistake 1: Not Being Clear About “On Demand”

“On demand” sounds straightforward, but your note should still explain:

• how demand must be given (email? post? registered office?)
• when repayment is due after demand (immediately? 7 days? 30 days?)

Without these details, you’re leaving room for argument - exactly what you’re trying to avoid.

Mistake 2: No Default Terms (Or Default Terms That Are Unworkable)

If a borrower misses a payment, what happens next?

You don’t want to be improvising under pressure. Even a short clause about default and acceleration (making the whole amount due) can make enforcement far easier.

Mistake 3: Getting The Party Names Wrong

This is more common than you’d think, especially where groups of companies are involved. If the wrong entity is named, you may struggle to enforce the promise.

Mistake 4: Using The Note Where You Actually Need A Proper Loan Agreement

If the loan is substantial, long-term, or you’re lending to a business with uncertain finances, a promissory note may not be enough protection.

In those situations, consider a more robust agreement (and potentially security). It’s usually cheaper to set it up properly at the start than to try to fix it mid-dispute.

Mistake 5: Ignoring How The Note Fits With Your Other Contracts

For example, if this loan is part of a wider commercial relationship (supply arrangements, services, or investment terms), you may need consistency across documents - particularly around liability, termination, and dispute resolution.

If liability allocation is relevant to the wider relationship, you may also want to consider how Limitation of liability terms should be handled across the suite of documents.

Do You Need Any Other Documents Alongside A Promissory Note?

Sometimes a promissory note is enough. But in many business deals, it’s only one piece of the puzzle.

If You Want The Right To Transfer The Debt

If you plan to sell the debt or transfer it to another entity (for example, as part of a restructure), you may need a separate assignment document. That’s where a Deed of assignment can come in.

Also note: while promissory notes can sometimes be “transferred” in the negotiable instruments sense (by endorsement/delivery), whether that applies depends on how the note is drafted and whether it meets the relevant formalities. Many SME notes operate simply as contract debts, where assignment rules apply and formalities can matter.

If The Loan Is From A Director Or Shareholder To Their Company

Where you’re lending money into your own company, it’s still worth documenting properly - especially if you have other shareholders, or if you want the repayment terms to be crystal clear for accounting and governance purposes.

Depending on your structure, you might also want the arrangement to align with your shareholders’ arrangements (for example, how funding decisions are made and documented). In that case, a Shareholders Agreement may be part of your broader “from day one” legal foundations.

If You’re Dealing With An Uncertain Repayment Schedule

If you don’t know exactly when repayments will happen (or you need flexibility), a promissory note with a rigid schedule may create problems.

In that scenario, a payment plan agreement (or a more detailed loan agreement with variation provisions) is often more practical for small businesses.

If You Need Security Or Personal Guarantees

A basic promissory note is usually unsecured. If you need additional comfort - like a director guarantee, a debenture, or a charge over assets - get advice. Security documents are technical, and getting them wrong can make them unenforceable or ineffective when you actually need them.

Key Takeaways

• A promissory note is a simple way to document a business loan as a clear written promise to pay, and it can be legally binding in the UK when drafted properly.
• The best promissory notes are specific: they clearly identify the parties, the amount, repayment terms, interest (if any), what counts as default, and what happens if repayment is late.
• A “payable on demand” note should still define how a demand is made and how quickly payment must follow, to reduce disputes.
• If the amount is significant or the risk is higher, a promissory note may be too thin - consider a full loan agreement and, where appropriate, security or guarantees.
• If repayments are staged or flexible, a payment plan agreement may be a better fit than a simple note.
• Don’t rely on vague emails or informal messages when money is on the line - get the terms into a single signed document with the right authority.

If you’d like help drafting or reviewing a promissory note (or choosing whether a loan agreement would better protect your business), you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.