How to Use a Promissory Note for Collateral

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A promissory note is a written promise to pay a set amount of money by a specified time to the bearer named in the note. In general, it does not have to be officially recorded. All borrowers on the note must sign it but it is optional for you, the lender, to sign it. It is an enforceable note that is usually used between people who personally know each other and it is completely customizable. Collateral is property pledged to secure repayment of a loan.

Ensure the borrower named in the promissory note has upheld the terms set forth in the promissory note, such as making timely payments.

Ensure that the interest you charged as set forth in the note is legal, not usurious.

Assign the promissory note to the person or institution who needs it for collateral to secure a loan for you. Do this with an addendum assigning your rights over or filling out formal assignment paperwork provided by the lender. In theory, a lender will only be interested in accepting your promissory note as collateral if at least a portion of the promissory note has been satisfied. In other words, there must have been some money paid back according to the terms of the promissory note.

Notify the borrower in the promissory note of the assignment.

Tips

  • The amount of money that the promissory note is worth as collateral is negotiable between you and your future lender.

Warnings

  • To protect yourself, consult an attorney before making an assignment.

References

About the Author

Katie B. Marsh is a self-published author, article writer, screenwriter, and inventor. After graduating from South Coast College of Court Reporting, she worked as a congressional and freelance court reporter for eight years. She began her writing career in 2005. Her content may be found on amazon.com, booksforsharing.com, and ezinearticles.com. She completed her first screenplay in October 2009.

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