Secured Promissory Note
Secured Promissory Note Generator
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Signature Requirements
Electronic Signature Accepted
Secured promissory notes are valid with electronic signatures under the ESIGN Act. The borrower must sign the note, and the lender typically signs as well. Notarization is optional but may be required for notes secured by real property.
Sample Secured Promissory Note Generated by Legal Tank
Secured Promissory Note
Parties and Definitions
This Secured Promissory Note (the "Note") is executed and delivered as of [____________] (the "Effective Date") by [____________] (the "Maker"), whose principal address is [____________], to and in favor of [____________] (the "Payee"), whose principal address is [____________]. This Note evidences a loan (the "Loan") made by Payee to Maker and is secured by the collateral described in Article V hereof, pursuant to that certain Security Agreement of even date herewith (the "Security Agreement").
Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Security Agreement. "Obligations" means all indebtedness, liabilities, and obligations of Maker to Payee arising under this Note, the Security Agreement, and any related documents, whether now existing or hereafter arising, direct or indirect, absolute or contingent, and whether for principal, interest, fees, costs, expenses, indemnities, or otherwise.
Principal Amount
For value received, Maker unconditionally promises to pay to the order of Payee the principal sum of [$__________] (the "Principal Amount"), together with accrued interest thereon, in lawful money of the United States. The Principal Amount represents the aggregate amount advanced by Payee to Maker as of the Effective Date, receipt and sufficiency of which are hereby acknowledged by Maker.
All payments under this Note shall be made to Payee by wire transfer, ACH, or certified check at the address or account specified by Payee in writing. Payments received after 2:00 p.m. (local time at Payee's designated location) on any Business Day, or on any day that is not a Business Day, shall be deemed received on the next succeeding Business Day. Each payment shall be applied first to Late Charges and costs, then to accrued interest, and finally to principal.
Interest Rate
The outstanding Principal Amount shall bear interest at a fixed annual rate of [____]% per annum (the "Contract Rate"), calculated on the basis of a 360-day year and actual days elapsed, from and including the Effective Date to but excluding the date of repayment in full. In the event that the Contract Rate exceeds the maximum rate permitted under applicable usury laws of the State of [____________], the rate shall be reduced to such maximum lawful rate, and any excess interest previously collected shall be credited against the outstanding Principal Amount.
Upon the occurrence and during the continuance of any Event of Default (as defined in Article VII), the outstanding Principal Amount and, to the extent permitted by applicable law, all other amounts due hereunder shall bear interest at a rate equal to the lesser of (a) the Contract Rate plus [____]% per annum, or (b) the maximum rate permitted by applicable law (the "Default Rate"). Interest at the Default Rate shall accrue from the date of the Event of Default until all Obligations are paid in full.
Payment Terms
Maker shall repay the Principal Amount and accrued interest in [____] consecutive [monthly/quarterly] installments of [$__________] each, commencing on [____________] and continuing on the [____] day of each successive [month/quarter] thereafter. The final installment shall be due and payable on [____________] (the "Maturity Date"), at which time all remaining principal, accrued interest, and all other amounts due under this Note shall be due and payable in full.
A late charge of [____]% of the overdue installment amount shall be assessed on any payment not received within [____] calendar days of its due date (the "Late Charge"). Maker acknowledges that the Late Charge constitutes a reasonable estimate of the administrative costs, inconvenience, and expense incurred by Payee as a result of late payment, and does not constitute a penalty. The Late Charge shall be payable immediately upon demand and shall be in addition to, not in lieu of, any Default Rate interest.
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Security and Collateral
This Note is secured by a first-priority security interest in the following property of Maker (collectively, the "Collateral"): [____________], as more particularly described in the Security Agreement executed contemporaneously herewith. Maker hereby grants to Payee a continuing security interest in the Collateral pursuant to Article 9 of the Uniform Commercial Code as adopted in the State of [____________] (the "UCC") to secure the prompt and complete payment and performance of all Obligations.
Maker represents and warrants that: (a) Maker is the sole owner of the Collateral, free and clear of all liens, security interests, encumbrances, and claims of any kind, except the security interest granted herein; (b) Maker has full power and authority to grant the security interest in the Collateral; (c) no financing statement, security agreement, or other lien instrument covering all or any part of the Collateral is on file in any public office; and (d) the Collateral is located at [____________] and shall not be removed therefrom without Payee's prior written consent.
Perfection of Security Interest
Maker hereby authorizes Payee to file one or more UCC financing statements (and any amendments, continuations, or renewals thereof) in any jurisdiction deemed necessary or desirable by Payee to perfect and maintain the perfection of Payee's security interest in the Collateral, without Maker's signature to the extent permitted by applicable law. Maker shall execute and deliver any additional documents, instruments, or agreements as Payee may reasonably request to evidence, perfect, or protect Payee's security interest in the Collateral.
Maker shall not create, incur, assume, or permit to exist any lien, security interest, or other encumbrance on the Collateral, other than the security interest granted herein and Permitted Liens (as defined in the Security Agreement), without Payee's prior written consent. Maker shall maintain the Collateral in good condition and repair, shall not permit any waste or impairment thereof, and shall maintain adequate insurance coverage on the Collateral as required by the Security Agreement, naming Payee as loss payee or additional insured, as applicable.
Events of Default
Each of the following shall constitute an "Event of Default" under this Note: (a) failure by Maker to make any payment of principal, interest, or other amount within [____] days of when due; (b) any material breach of any representation, warranty, covenant, or obligation of Maker under this Note or the Security Agreement; (c) the filing of a voluntary or involuntary petition in bankruptcy by or against Maker under Title 11 of the United States Code, or any state insolvency proceeding; (d) the sale, transfer, encumbrance, or disposition of all or any material portion of the Collateral without Payee's prior written consent; (e) any material adverse change in Maker's financial condition that, in Payee's reasonable judgment, impairs Maker's ability to perform the Obligations.
Upon the occurrence of any Event of Default, Payee shall have, in addition to all other rights and remedies under this Note and the Security Agreement, all rights and remedies of a secured party under the UCC, including the right to take possession of the Collateral, to require Maker to assemble the Collateral at a place designated by Payee, and to sell or otherwise dispose of the Collateral in a commercially reasonable manner pursuant to UCC Section 9-610. Maker shall be liable for any deficiency remaining after the disposition of the Collateral.
Acceleration
Upon the occurrence of any Event of Default, Payee may, at its sole election, declare all unpaid principal, accrued interest, Late Charges, and all other Obligations immediately due and payable without further notice or demand, except as required by applicable law. Upon the occurrence of an Event of Default described in Section 7.1(c), all Obligations shall be automatically accelerated without any action by Payee. Following acceleration, Payee may proceed to enforce its rights and remedies under this Note, the Security Agreement, and applicable law.
Payee's exercise of any right or remedy hereunder shall not preclude the simultaneous or later exercise of any other right or remedy. No delay or omission by Payee in exercising any right or remedy shall operate as a waiver thereof. Maker acknowledges that upon acceleration, the entire Obligations shall bear interest at the Default Rate specified in Section 3.2 until paid in full.
Remedies
The rights and remedies of Payee as provided in this Note, the Security Agreement, and by applicable law, including the UCC, shall be cumulative and concurrent, and may be pursued singly, successively, or together at the sole discretion of Payee. Payee may apply the proceeds of any Collateral disposition in the following order: (a) to the payment of all costs and expenses of retaking, holding, preparing for sale, selling, and disposing of the Collateral, including reasonable attorneys' fees; (b) to accrued and unpaid interest and Late Charges; (c) to the outstanding Principal Amount; and (d) to any other Obligations. Any surplus shall be returned to Maker.
Maker hereby waives presentment, demand, notice of dishonor, protest, and all other notices in connection with this Note, to the fullest extent permitted by the UCC and other applicable law. Maker agrees to pay all costs of collection, including reasonable attorneys' fees, whether or not suit is instituted, and all costs of any action or proceeding to enforce this Note or the Security Agreement, including fees incurred on appeal or in any bankruptcy or insolvency proceeding.
Governing Law
This Note shall be governed by and construed in accordance with the laws of the State of [____________], including the UCC as adopted in such State, without giving effect to conflict of laws principles. Maker consents to the exclusive jurisdiction of the state and federal courts sitting in [____________] County, [____________], and waives any objection based on venue, inconvenient forum, or lack of personal jurisdiction in any such action or proceeding.
If any provision of this Note is held by a court of competent jurisdiction to be invalid, illegal, or unenforceable, such provision shall be modified to the minimum extent necessary to make it valid and enforceable, and the validity, legality, and enforceability of the remaining provisions shall not be affected or impaired thereby. This Note constitutes the entire agreement between Maker and Payee with respect to the subject matter hereof and supersedes all prior negotiations, representations, and agreements relating thereto.
What Is a Secured Promissory Note?
A secured promissory note is a written financial instrument in which a borrower (the maker) promises to repay a specified sum of money to a lender (the payee or holder), with the obligation backed by designated collateral that the lender can seize and liquidate if the borrower fails to make payments as agreed. The collateral provides the lender with a tangible asset to recover the outstanding debt in the event of default, significantly reducing the lender's risk compared to an unsecured obligation. Secured promissory notes are governed by UCC Article 3, which addresses negotiable instruments, and UCC Article 9, which governs the creation, perfection, and enforcement of security interests in personal property. The secured promissory note is commonly used in real estate financing, vehicle purchases, business equipment loans, and private lending transactions where the lender requires asset-backed protection.
The security interest created by a secured promissory note must be perfected to give the lender priority over other creditors who may have claims against the borrower's assets. Perfection is accomplished by filing a UCC-1 financing statement with the appropriate state filing office, typically the Secretary of State, which provides public notice of the lender's security interest in the specified collateral. Under UCC Article 9, the first creditor to properly perfect their security interest generally has priority over subsequently filed interests, making prompt filing essential. For real property collateral, the security instrument takes the form of a mortgage or deed of trust rather than a UCC filing, and the document must be recorded with the county recorder. The distinction between a secured promissory note and a mortgage is important: the promissory note represents the borrower's promise to pay, while the mortgage pledges specific real property as collateral for that promise. A secured promissory note should be coordinated with a Promissory note generator template for consistent formatting and terms.
Common types of collateral pledged under secured promissory notes include vehicles, equipment, inventory, accounts receivable, investment accounts, and real property. The security agreement, which may be incorporated into the note itself or executed as a separate document, describes the collateral in sufficient detail to allow identification, grants the lender a security interest, and establishes the borrower's obligations to maintain, insure, and refrain from encumbering the collateral. The borrower typically retains possession and use of the collateral during the term of the note, but the lender has the right to take possession through repossession or foreclosure upon default. Under UCC Section 9-610, the lender must conduct the disposition of collateral in a commercially reasonable manner, providing the borrower with proper notice and applying the proceeds first to the costs of repossession and sale, then to the outstanding debt.
Interest rates on secured promissory notes are generally lower than those on unsecured promissory notes because the collateral reduces the lender's risk exposure. However, the interest rate must still comply with applicable state usury laws, which impose maximum permissible rates that vary by state and transaction type. The note should clearly specify whether the interest rate is fixed or variable, how interest is calculated (simple interest on the declining balance or compound interest), and whether a default interest rate applies if the borrower fails to make timely payments. For consumer transactions, the Truth in Lending Act requires disclosure of the annual percentage rate (APR) and total finance charges before the loan is consummated. The acceleration clause allows the lender to demand immediate repayment of the full outstanding balance upon default, and the note should define the specific events that trigger default. Understanding how secured notes work alongside other financial documents like an Llc agreement template is important when business entities are involved in the lending relationship.
| Feature | Secured Promissory Note | Unsecured Promissory Note |
|---|---|---|
| Collateral | Specific assets pledged as security | No collateral, relies on creditworthiness |
| Interest Rates | Typically lower due to reduced risk | Typically higher to compensate for risk |
| Lender Remedies on Default | Repossession, foreclosure, deficiency judgment | Lawsuit, judgment, wage garnishment |
| UCC Filing Required | Yes, UCC-1 for personal property | No filing needed |
| Complexity | Higher, security agreement, collateral description | Lower, simpler documentation |
Why You Need a Secured Promissory Note
You are lending a significant amount of money to an individual or business and want collateral protection to reduce your risk of loss in case the borrower defaults on the repayment obligations. Review our free secured promissory note template to understand the standard collateral and security interest provisions.
You are financing the purchase of equipment, a vehicle, or other tangible property and want the purchased item to serve as collateral securing the repayment obligation, similar to how an auto loan or equipment financing works. For complex transactions, pair the note with a detailed loan agreement that includes detailed covenants and representations.
You are a private lender or investor who makes regular loans and needs a standardized secured note template that establishes your security interest and provides clear remedies upon default. You should also consider a full Free promissory note for transactions that do not require collateral.
Your business is extending credit to another business and requires collateral, such as accounts receivable, inventory, or equipment, to secure the obligation and establish priority over other potential creditors. Our Attorney-grade contract drafting can prepare a secured note with properly described collateral and UCC filing guidance.
You are refinancing an existing debt and want to formalize the new terms in a secured note that provides better protection for the lender, including an updated collateral description, perfection through UCC filing, and clear default remedies. A Sample service agreement may also be needed if the lending arrangement includes management or advisory services.
Related Contracts & Agreements Documents
Secured Promissory Note is often used alongside other contracts & agreements documents. Depending on your situation, you may also need:
Key Sections in a Secured Promissory Note
Promise to Pay
This section contains the maker's unconditional promise to pay the specified principal amount to the payee or their order. It identifies both parties by full legal name and address and states the exact dollar amount of the obligation. The promise to pay is the operative clause that creates the legal obligation.
Interest Rate and Calculation
The interest provision specifies the annual interest rate, whether it is fixed or variable, how interest is calculated, and when it accrues. It must comply with applicable state usury laws and, for consumer transactions, Truth in Lending Act disclosure requirements. A default interest rate that applies upon borrower default may also be specified.
Repayment Terms
This section establishes the repayment schedule, including payment amounts, due dates, frequency, and the total number of payments. It specifies whether the note is payable in equal installments, interest-only with a balloon payment, or on demand. Late payment fees and grace periods are defined here.
Collateral Description and Security Interest
The collateral section describes the property pledged as security for the note with sufficient specificity to allow identification under UCC Article 9. It grants the lender a security interest in the described collateral and references any separate security agreement that provides additional terms governing the collateral.
UCC Filing and Perfection
This section addresses the lender's right to file a UCC-1 financing statement to perfect the security interest and establish priority over other creditors. It may require the borrower to cooperate with the filing process and to execute any additional documents necessary to perfect the lender's interest in all applicable jurisdictions.
Default and Remedies
The default section defines specific events of default, including missed payments, breach of covenants, bankruptcy filing, and material misrepresentation. It outlines the lender's remedies, including acceleration of the full balance, repossession or foreclosure of collateral, and the right to pursue a deficiency judgment if the collateral sale does not cover the outstanding debt.
Secured Promissory Note Legal Requirements
UCC Article 9 governs the creation, perfection, and enforcement of security interests in personal property and requires that the security agreement describe the collateral with sufficient specificity, be authenticated by the debtor, and convey a security interest to the secured party.
A UCC-1 financing statement must be filed with the appropriate state filing office (typically the Secretary of State) to perfect the security interest and establish priority over other creditors, and the filing must be renewed every five years by filing a UCC-3 continuation statement.
Under UCC Section 9-610, a secured party who repossesses collateral upon default must dispose of it in a commercially reasonable manner, provide the debtor with reasonable notice of the disposition, and apply the proceeds first to the costs of repossession and then to the outstanding debt.
State usury laws impose maximum interest rates that apply to secured promissory notes, and exceeding the applicable limit can result in forfeiture of all interest, voiding of the note, or statutory penalties depending on the jurisdiction.
For consumer credit transactions secured by personal property, the Truth in Lending Act (15 U.S.C. Section 1601 et seq.) requires disclosure of the APR, total finance charges, and the consumer's right to rescind certain secured transactions within three business days.
Common Secured Promissory Note Mistakes to Avoid
Failing to file a UCC-1 financing statement to perfect the security interest, which leaves the lender as an unperfected creditor with lower priority than other creditors who have properly perfected their interests in the same collateral.
Describing the collateral too vaguely in the security agreement, which can render the security interest unenforceable because the collateral cannot be adequately identified under UCC Article 9 requirements.
Not conducting a UCC search before accepting collateral, which may reveal that another creditor already has a prior perfected security interest in the same assets, leaving the new lender in a subordinate position.
Setting an interest rate that exceeds the applicable state usury ceiling, which can void the interest obligation or expose the lender to statutory penalties depending on the jurisdiction.
Failing to dispose of repossessed collateral in a commercially reasonable manner as required by UCC Section 9-610, which can result in the lender losing the right to pursue a deficiency judgment against the borrower.
Frequently Asked Questions About Secured Promissory Notes
What is a secured promissory note?
What is the difference between secured and unsecured promissory note?
What can be used as collateral for a promissory note?
Does a secured note need to be filed?
What is a UCC filing?
What happens if you default on a secured note?
Is a secured promissory note the same as a mortgage?
Do promissory notes need to be notarized?
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