Promissory Notes & Business Loan Agreements: What to Check
A promissory note looks simple, but the interest, prepayment, acceleration, and guaranty terms decide how much it really costs and how much risk you carry.
Last reviewed: May 26, 2026 by the BizLeaseCheck Editorial Team
General information, not legal advice.
Overview
A promissory note or business loan agreement is a true loan: it states a principal, an interest rate, and a repayment schedule. Compared with an MCA it is usually cheaper and clearer, but it still has terms worth checking closely.
Read the rate, the prepayment terms, the acceleration and default provisions, and any guaranty or security.
Topics to check
Confirm the stated interest rate, whether it is fixed or variable, and how it is calculated. Unlike an MCA, a loan is subject to state usury limits in many cases. Watch for a balloon payment — a large lump sum due at maturity — which can force a refinance on whatever terms are available then.
A clear amortization schedule shows how much goes to interest versus principal over time.
Promissory note (Cornell LII Wex)Check whether you can prepay without penalty (a prepayment penalty or "make-whole" can be costly), and review the acceleration clause — what events let the lender call the entire balance due. Broad default definitions and cross-default clauses (a default on one obligation triggering others) increase risk.
A genuine notice-and-cure period before acceleration is valuable protection.
Note whether the loan requires a personal guaranty and a security interest (a UCC-1 lien), and whether — as with MCAs — it slips in a confession of judgment. Even on a legitimate loan, these clauses determine how far the lender can reach on default.
Treat a promissory note with a confession of judgment with the same caution as an MCA.
Key takeaways
- A promissory note is a true loan with a stated rate — usually cheaper and clearer than an MCA.
- Confirm the rate, fixed vs variable, usury limits, and any balloon payment.
- Check prepayment penalties and exactly what triggers acceleration.
- Watch for broad default and cross-default clauses; seek notice-and-cure.
- Review any personal guaranty, UCC lien, and confession of judgment closely.
Official resources
Legal-review notes
Guide confidence marker: Medium confidence.
- Usury limits, prepayment-penalty enforceability, and acceleration vary by state and document.
- Have counsel review the note’s rate, guaranty, security, and any confession of judgment.
Frequently asked questions
What should I check first in a promissory note?
The interest rate (and whether it is fixed or variable), the repayment schedule and any balloon payment, prepayment penalties, the acceleration and default terms, and any personal guaranty, security interest, or confession of judgment.
What is a balloon payment?
A large lump-sum payment due at the end of the loan term after smaller periodic payments. It can force you to refinance at maturity on whatever terms are then available, so confirm whether the note has one and plan for it.
Are business loans subject to usury limits?
Often yes — unlike MCAs (which are framed as receivables purchases to avoid usury), a true loan is subject to state usury limits in many cases. The applicable cap and exemptions vary by state and borrower type.