Promissory Note Template In The UK: Key Clauses And How To Use It

If your business lends or borrows money, a promissory note can be a simple, fast way to record the debt and repayment terms.

But a “simple template” can also create complex problems if it misses key protections, clashes with UK law, or doesn’t align with how you actually plan to get repaid.

In this guide, we walk through what a promissory note is under UK law, what a solid promissory note template should include, a practical promissory note example, how it compares to a loan agreement, and the steps to use one confidently in your day-to-day operations.

What Is A Promissory Note (UK)?

A promissory note is a written, signed promise by one party (the “maker”) to pay a fixed sum of money to another party (the “payee”) either on demand or at a defined future date. In the UK, promissory notes are recognised under the Bills of Exchange Act 1882 - in short, they’re a legitimate negotiable instrument when they meet the basic requirements (a clear, unconditional promise to pay a certain sum, in writing, signed by the maker).

Small businesses use promissory notes for a range of situations, for example:

• Short-term advances to or from a director or shareholder (e.g., bridging finance)
• Supplier or customer repayment plans to resolve an overdue balance
• Intercompany loans within a group
• Documenting a simple business-to-business loan where both sides want a quick record of the debt

Think of a promissory note as the lean, streamlined cousin of a loan agreement. That’s handy when you need speed and clarity - but it also means you should be very deliberate about the terms you include. For a fuller primer, see our overview of promissory notes.

What Should A UK Promissory Note Template Include?

A good UK promissory note template does more than state the amount and a due date. To be useful (and enforceable), it needs the right building blocks and the right level of detail for your situation. At minimum, make sure your template covers:

• Parties and addresses: Full legal names and registered addresses of the maker (borrower) and payee (lender). If a company is involved, include the company number.
• Principal amount: The exact sum owed, in GBP.
• Interest: Whether interest applies, the annual rate (fixed or variable), when it accrues (e.g., from the issue date, or only if overdue) and calculation basis.
• Repayment terms: On demand, a single maturity date, or instalments (with dates or triggers). Include early repayment rights and whether prepayment penalties apply.
• Default and remedies: What constitutes default (e.g., missed payment, insolvency) and what happens next - accelerated repayment, default interest, recovery costs, security realisation, etc.
• Security (if any): Whether the note is secured or unsecured. If secured, reference the separate security document and the collateral (e.g., a General Security Agreement over company assets or a charge over specific equipment).
• Guarantee (if any): If a director or parent company is guaranteeing payment, reference the separate Deed of Guarantee.
• Set-off and deductions: Whether payments must be made free of set-off and deductions.
• Assignment or transfer: If and how the payee can transfer the note to a third party, and any maker consent required.
• Governing law and jurisdiction: Typically England and Wales for UK businesses.
• Notices: Where formal notices should be sent and when they take effect.
• Execution: Signature block(s) with the right authority for a company or LLP. If you’re signing as a deed (for longer limitation periods or added formality), follow the correct executing contracts process.

Depending on your scenario, you may also want:

• Financial covenants: For larger sums, a promise to maintain certain financial ratios or not incur further debt without consent.
• Information undertakings: Regular management accounts or notice of adverse events.
• Events of default detail: A fuller list (non-payment, misrepresentation, cross-default, insolvency, cessation of business) and cure periods. If you’re using a loan-style approach, build this out with clear events of default.
• Security release mechanics: How the charge is released when repaid.
• Tax gross-up: Who bears withholding or deduction risk, if relevant cross-border.

Important: If you’re lending to an individual or sole trader rather than a limited company, the Consumer Credit Act 1974 can apply. This imposes strict form, disclosure and authorisation requirements for “regulated agreements”. If there’s any chance consumers are involved, get advice before issuing a promissory note - non-compliant credit agreements can be unenforceable or lead to regulatory issues.

Promissory Note Example: A Simple Structure You Can Understand

Below is a plain-English structure you’ll commonly see in a UK promissory note template. It’s not a one-size-fits-all document, but it shows the typical flow and wording you can expect.

1. Heading And Parties

“Promissory Note” followed by the date, the legal names of the maker (borrower) and payee (lender), and each party’s address and company number (if applicable).

2. Promise To Pay

“For value received, promises to pay to the principal sum of £ (the ‘Principal’) on , together with interest as set out in this Note.”

3. Interest

“Interest shall accrue on the outstanding Principal at the rate of % per annum, calculated on a basis from until paid in full. If any amount is not paid when due, default interest shall accrue on that overdue amount at % per annum.”

4. Repayment

“The Maker shall repay the Principal and accrued interest on the of each month until the Maturity Date / in full on ]. The Maker may prepay all or any part of the Principal without penalty .”

5. Default And Acceleration

“If an Event of Default occurs, the Payee may, by notice to the Maker, declare all or part of the outstanding Principal and accrued interest to be immediately due and payable.”

“Event of Default” might include non-payment, insolvency events, a breach of undertakings, or misrepresentation.

6. Costs And Expenses

“The Maker shall pay all reasonable costs and expenses (including legal fees) incurred by the Payee in connection with the enforcement of this Note.”

7. Security And Guarantees (If Applicable)

“This Note is secured by a over the assets described in the dated .” Or, “Payment under this Note is guaranteed by under a Deed of Guarantee dated .”

8. Assignment

“The Payee may assign or transfer this Note . The Maker may not assign its rights or obligations.”

9. Notices, Governing Law And Jurisdiction

Standard boilerplate setting out where notices are sent, the law of England and Wales applies, and the courts of England and Wales have exclusive jurisdiction.

10. Execution Block

Signature(s) for the maker and, if required, the payee. If executed as a deed, follow the deed execution formalities (appropriate signatories and witnessing, depending on the entity type).

Again, this is a sample promissory note structure for illustration. Your business may need additional protections (especially for larger sums), or you may be better served by a fuller Loan Agreement.

Promissory Note Template Vs Loan Agreement: Which Should You Use?

Both documents record a debt, but they suit different scenarios.

When A Promissory Note Works Well

• Speed and simplicity are priorities (e.g., intercompany or short-term business-to-business lending).
• Lower-value sums where neither side needs a long list of covenants or conditions precedent.
• The relationship is trusted and commercial risk is modest.

When A Loan Agreement Is Better

• You need detailed terms: drawdowns, conditions precedent, representations and warranties, covenants, material adverse change, information undertakings, and built-out events of default.
• Security is required over assets, or you’re lending alongside a General Security Agreement or specific asset charge.
• You want a robust consent/assignment regime, transfer mechanics, or agency arrangements for multiple lenders.
• The borrower is an individual/sole trader and Consumer Credit Act issues need careful handling.

As a rule of thumb, the more complex the deal (or the higher the risk), the more a loan agreement earns its keep. For a side-by-side overview of the differences, see our guide on a promissory note vs. loan agreement.

How To Use A Promissory Note In Your Business (Step-By-Step)

1) Confirm Who You’re Lending To

Check the borrower’s full legal name and status. If it’s a company, look up its registered name and number on Companies House and confirm the signer’s authority. If you’re relying on someone inside the business to sign, be mindful of who has actual or apparent authority; our guide on an execution checklist is a helpful starting point.

2) Decide On Secured Or Unsecured

Unsecured notes are quicker, but you stand behind other creditors if things go wrong. For better protection, consider taking security over assets (e.g., a debenture or specific charge) or a personal guarantee from a director or parent company via a Deed of Guarantee. Security requires extra paperwork and registration steps (such as filing a charge with Companies House within 21 days), but it can make the difference when enforcing.

3) Set Clear Repayment And Interest Terms

Be precise. If you say “on demand”, the lender can call the full amount at any time. If you prefer predictability, set instalments or a fixed maturity date. Spell out your interest rate (and default rate) clearly and avoid ambiguous calculations.

4) Include Practical Default Triggers

At minimum, non-payment and insolvency should be events of default. If you need more control (for example, the right to accelerate on a covenant breach), either expand this section in the note or switch to a loan agreement format so you can incorporate fuller events of default.

5) Execute Correctly

Ensure the note is in writing and signed by the maker. If signing as a deed (often chosen for added formality and a longer 12-year limitation period), follow the right witnessing and signatory rules for your entity type - see our practical guide to executing contracts.

6) Keep Records And Diary Dates

File a signed copy, record the principal, interest rate and due dates, and diarise instalments and maturity. If you’ve taken security, complete any required registrations promptly.

7) Enforce Fairly And Commercially

If a payment is missed, follow the default and notice process in your note. Keep communications professional and consistent with the contract. If you need to restructure the debt (for example, moving to instalments), you can amend and restate the note, or use a short form variation or deed of variation. If you plan to transfer the debt to another party, check your assignment clause and consider a formal assignment or novation process; our explainer on assignment vs. novation sets out the differences.

Legal Risks And UK Compliance To Keep In Mind

Bills Of Exchange Act 1882 Basics

To be a promissory note under the Act, the document must contain an unconditional promise to pay a certain sum of money, be in writing and signed by the maker. If your document is missing these essentials, it may still be an enforceable contract - but you’ll lose some of the benefits attached to negotiable instruments.

Consumer Credit Act (If Lending To Individuals)

If the borrower is an individual or certain small partnerships, the Consumer Credit Act 1974 may apply. Regulated agreements require particular form and disclosures, and lenders may need authorisation. If your business is strictly B2B (lending to limited companies), this is less likely to be an issue - but always confirm the borrower’s status.

Limitation Periods

Promissory notes signed as a simple contract generally have a six-year limitation period for bringing claims (from the date of breach). If executed as a deed, the period is typically twelve years. This is one reason some lenders opt to execute a note as a deed even for simple arrangements.

Security Priority And Perfection

If you take security, accuracy and timing matter. A charge over a company’s assets usually needs to be registered at Companies House within 21 days to be effective against a liquidator and other creditors. If you’re relying on a General Security Agreement, ensure the asset description and filing details are correct.

Interest And Default Interest

Default interest must be a genuine pre-estimate of loss or a reasonable deterrent, not a penalty. Excessive default interest risks being struck out. Clear drafting around when default interest applies (and when it stops) helps avoid disputes.

Transferring Or Selling The Debt

Some businesses assign a promissory note to a debt purchaser to accelerate cash flow. Your assignment clause should permit this, and you’ll need to comply with notice requirements and any perfection steps. Our guidance on selling debt to a collection agency explains key points to consider, including the role of debt assignment mechanics and consent. If assignment isn’t appropriate, a formal novation can substitute the creditor with the buyer, typically via a deed of novation.

Tax And Accounting

Interest received is generally taxable income; interest paid is usually deductible (subject to the usual rules). Make sure your finance team records accruals accurately and understands how early payments or write-offs are treated.

Converting Debt To Equity

As a fallback or part of a restructuring, you might convert the balance under a promissory note into shares in the borrower. This is a debt-for-equity scenario and needs careful thought (valuation, shareholder approvals, pre-emption rights, tax) - a loan agreement is often the better base for this, but a note can be exchanged as part of a wider debt-for-equity swap.

Should You Use A Free Promissory Note Template?

Free templates can be tempting. For a very simple, low-risk, short-term arrangement between trusted companies, a basic form may do the job. But we regularly see templates that miss crucial points - like security, a workable events of default regime, or assignment - which can make enforcement harder than it needs to be.

As a minimum, treat any “promissory note sample” or “promissory note UK template” as a starting point and tailor it to:

• The parties (company vs individual),
• The repayment profile (demand vs amortising),
• Whether you need security or a guarantee,
• How you’ll calculate interest and default interest, and
• How you want to handle transfers and enforcement.

If the sums are meaningful to your cash flow, a properly drafted note or a short-form Loan Agreement is a small investment compared to the cost of a dispute.

Key Takeaways

• A promissory note is a straightforward way for UK businesses to document a debt - but it must contain an unconditional promise to pay a certain sum, be in writing, and be signed by the maker to benefit from Bills of Exchange Act recognition.
• Strong templates go beyond “amount + date” and include interest, clear repayment terms, default and remedies, and (if needed) references to a General Security Agreement or a Deed of Guarantee.
• Use a promissory note for simple, low-complexity lending; choose a fuller Loan Agreement when you need conditions precedent, covenants and detailed events of default.
• If your borrower is an individual or sole trader, check for Consumer Credit Act implications - regulated agreements require specific form and may require authorisation.
• Execute correctly and file any security promptly. The right signatories and formalities matter - especially if you’re signing the note as a deed. Use our practical guide to executing contracts.
• Plan your enforcement path upfront: sensible default triggers, an acceleration right, and realistic recovery options (including assignment or novation if you may transfer the debt) help you act quickly if things go off track.
• Templates are a useful starting point, but tailoring protects your business - get the key clauses right from day one so you can lend or borrow with confidence.

If you’d like help preparing a promissory note or deciding whether a short-form note or loan agreement is right for your situation, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.