Report Promissory Note

MONEY AND CAPITAL MARKETS
(MFA 3023)
PROMISSORY NOTE REPORT
NAME MATRIC NUMBER

SAIYIDAH SYAFIQAH BINTI MOHD SHADON 1170204
GROUP: KMC 2
LECTURER’S NAME: DR HAZIAH BINTI NAWAI
A promissory note is a financial instrument containing a written agreement by one party
(the note’s issuer) to pay a definite sum of money to another party (the note’s payee), either
on demand or at a stated future date. A promissory note typically includes all the terms of
the loan, such as the principal amount, interest rate, maturity date, place of issuance, and
issuer’s signature. Although financial institutions may issue them, promissory notes are debt
instruments that allow businesses and individuals to obtain financing from a source other
than a bank. This source may be an individual or a company willing to carry the note and
provide the financing under the agreed upon terms. In effect, anyone becomes a lender
when he issues a promissory note.
There are several types of promissory note. These notes are largely classified by the type
of loan issued, or purpose for the loan. The following types of promissory note are legally
binding contract. First, the personal promissory note. This type is used when people make
loans to family members and friends. Usually friends and family members lend money to
each other by means of a verbal agreement on the tenure of the loan. Since there is no
document evidence of the loan’s existence, this verbal agreement will not legally stand up in
court. However, a personal promissory note is a legal document that ensures that money will
be paid back by the borrower.
Second is the commercial promissory note. Commercial promissory notes are an

instrument that evidences the specific terms agreed between the borrower and lender. If the
borrower failed to repay the amount of the loan, the commercial lender may legally assign a
lien to any of the borrower’s property. Therefore, when a borrower defaults on a commercial
promissory note, the lender does not have to wait to receive the borrower’s money in
instalments, but can demand full payment immediately. For instance, if the loan amount is
RM5000 and the borrower defaults in making instalment payment then the signed
commercial promissory note will give the lender power to demand the entire balance.
Third, the real estate promissory note. It is a document signed by a buyer who get a
mortgage loan from a mortgage lender. It provides that the loan taken by the borrower must
be paid back. But in case where the borrower defaults, the lender will not be completely
exempted and will have to pay the loan. Real estate promissory note is similar to a
commercial note, as it stipulates that a lien can be placed on the borrower’s home or other
property if he defaults. Real estate promissory notes must bind to conditions elaborated by
the national conference of commissioners on uniform state laws.
Fourth, the investment promissory notes. It refers to the promissory notes utilized by
some organizations to raise capital for business purposes. Investment notes are issued by
investors in substitute for loan. Investors who invest in a company also take the risk of losing
their investment money. Therefore, some investors prefer to invest with an investment loan
requiring the business or individual company they have invested to repay the money,
regardless of the company’s success. The borrower must sign the investment promissory
note and should undertake to pay all monies that the lender initially invested, unless the note
states otherwise. Sometimes the investors may seek ownership in the company in return for
their investment. Investment notes guarantee investors that they will receive a return on their
investment within a specified period of time.
Lastly, there are variety of promissory note payment options to suit the need of both
parties. Promissory note payment includes the structure of the loan, repayment terms, and
other information vital to enforcing the note. In addition to the amount of the loan, it is
important to include very specific terms for repayment. Types of repayment include lump
sum, due on demand and with interest. A lump sum payment option is the most
straightforward type of repayment, as it specifies that the borrower will repay the entire
amount of the loan with a single payment. A date is specified in the note, on which the full
repayment is due, including interest if applicable. A due on demand note specifies that the
borrower must repay the loan when the lender asks for it. The borrower is given a
reasonable amount of time before such a demand may be made. In some cases, the lender
is given the option of asking for payments before demanding the balance in full. While a
payment with interest is where a lender can structure the promissory note with interest to
calculate a monthly or annual interest rate based on the amount remaining on the principal
loan. When the borrower makes payments, the payment is applied to the accrued interest
first, then the balance of the payment is applied to the principal.
REFERENCES
1. https://www.legalzoom.com/articles/what-is-a-promissory-note
2. https://www.investopedia.com/terms/p/promissorynote.asp

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What are the different types of promissory notes?

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MONEY AND CAPITAL MARKETS

PROMISSORY NOTE REPORT

NAME MATRIC NUMBER

Second is the commercial promissory note. Commercial promissory notes are an

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