Who Is Responsible For Reviewing And Approving A Promissory Note?

Last Updated: May 2024

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Promissory notes serve as legally binding agreements between two parties wherein one party promises to pay a certain amount of money to the other party. In this case, it’s essential to know who is responsible for reviewing and approving promissory notes.

The person responsible for reviewing and approving promissory notes varies from one setting to another. In most cases, financial institutions require that a designated loan officer approves promissory notes before releasing the funds. However, individual lenders or private entities may not require such approval.

It’s crucial to understand the role of different parties involved in drafting and approving promissory notes. The borrower creates the promissory note stating the loan’s terms and signs it agreeing to repay the loan on specific terms outlined in the agreement. On the other hand, the lender must review and approve it before distributing any collected funds to ensure compliance with internal regulations.

Legal and financial experts recommend seeking specialized input from both an attorney and a financial advisor when drafting such agreements. A financial advisor can provide expert guidance on creditworthiness or potential risks associated with lending while an attorney can assist in drafting legal paperwork.

According to Investopedia, institutional investors such as pension funds are some of the prominent buyers of promissory notes due to their relative risk compared to investing directly in stocks or bonds.

A promissory note: the IOU of adulthood, or as I like to call it, the adult version of a sticky note.

Promissory Note – Definition and Purpose

To understand promissory notes with their types, you need to know the definition and purpose behind them. Promissory notes are legal documents that establish a borrower’s obligation to repay a lender a sum of money, with interest, within a specified time frame. In this section, we will introduce you to the different types of promissory notes.

Types of Promissory Notes

Promissory Notes Varieties

Different types of promissory notes serve various purposes, from financial investments to legal settlements. Here are some common ones:

Type of Promissory Note Definition
Secured Guaranteeing repayment with collateral, such as a property or vehicle
Unsecured No collateral required
Demand Payable on demand by the lender
Installment Payment in multiple installments over time
Balloon Large payment due at the end of the loan period

For specialized purposes, other varieties may include student notes, mortgages and business notes. Each type has distinct features that cater to specific needs.

Learning about promissory notes can benefit real-life situations. In New York City, a venture capitalist invested in a promising startup to fund future growth using convertible promissory notes. After two years, the note matured and the company converted it into equity. This allowed for more significant returns than an ordinary investment would have provided.

When it comes to promissory notes, there are only two parties involved – the one giving the IOU and the one anxiously waiting for it to be paid off.

Parties Involved in Promissory Note

To understand the parties involved in a promissory note with the maker, payee, and endorser, you need to know who is responsible for reviewing and approving it. The maker creates the promise, the payee receives the payment, and the endorser endorses the promise. Learn about the roles of each party to understand who takes on the reviewing and approving responsibilities.


The individual or entity who promises to pay the amount mentioned in a promissory note is referred to as the Obligor. This Obligor, commonly known as the Maker, is primarily responsible for making payment on time. Failure to do so may lead to legal action against them, resulting in damaged credit scores and reputation.

As per law, a Maker must sign the promissory note in agreement to make payments on time. They also have the option to negotiate terms with their Lender/Lending Institution beforehand. The negotiated terms can include details such as interest rates, repayment period, late-payment fees among others.

It is important to note that Makers should thoroughly read and comprehend all the terms and conditions mentioned in the promissory note before signing it. Any ambiguity or confusion regarding these terms can result in serious consequences.

To ensure smooth processing of funds and avoid payment discrepancies, it is recommended for Makers to maintain an adequate record of their payments made towards their promissory notes regularly. In instances where they are unable to make payments on time due to financial difficulties, it is best to inform their Lender immediately and work out an alternative agreement.

Being a payee on a promissory note is like being a birthday kid receiving a bunch of IOUs instead of actual presents.


The recipient of a promissory note is known as the Payee. The payee is the person or party who receives the promise to pay from the maker of the note, known as the issuer. Once the promissory note is signed by both parties, it becomes a legally binding document that shows that debt exists.

As per legal norms, sometimes, more than one person or entity can qualify as a payee on a promissory note. In such situations, each party involved holds an equal right to payment and has the ability to endorse or transfer their interest in the note to another party.

It is common for promissory notes to have specific conditions regarding when and how payments will be made to the payee(s). These requirements might include specific dates for payments, interest rates charged on overdue payments, and any penalties or fees associated with missed or incomplete payments.

In an unusual incident in Florida back in 2018, an individual sold their home through owner financing using a promissory note. The buyer defaulted on multiple payments causing financial strain on the seller’s part. As per legal intervention, it was found out that there were four parties involved in manufacturing this promissory note including a broker, an attorney drafting up contracts and arrangements for both parties.

Being an endorser on a promissory note is like being the designated driver at a party – you’re responsible for everyone else’s actions, but you don’t get to have any fun.


An endorser in a promissory note is someone who adds their signature to the document and assumes liability for its payment. They are also known as endorsers or guarantors. The endorser is often someone with a good credit history, as their endorsement can help the issuer obtain credit from lenders.

Endorsers are legally responsible for repaying the debt if the borrower defaults. This means that if the holder of the note cannot collect payment from the borrower, they can turn to the endorser to fulfill the payments.

While endorsers are not required, their addition to a promissory note can add strength to an application for credit. Financial institutions often request endorsers before providing loans or credit lines.

In some cases, an endorser may waive any defenses they might have had against repayment of the debt in exchange for being released from other liabilities under the note. This protects them from unexpected legal action while ensuring that payments will be made on time.

A well-known example of an endorsement gone wrong is when former basketball player Dennis Rodman endorsed a $1 million check issued by his friend but was later unable to cover it when it bounced. The bank then sued him for non-payment, resulting in Rodman needing to file for bankruptcy.

Get ready for some serious paperwork, because reviewing and approving promissory notes is like playing a game of contract Tetris – fitting all the pieces in just right.

Reviewing and Approving Promissory Note

To understand the review and approval process for promissory notes, dive into the role of makers and payees. Legal requirements for approval are also crucial. This section on reviewing and approving promissory notes with sub-sections like the role of the maker in reviewing the promissory note, role of payee in approving the promissory note, and legal requirements for approving promissory notes have solutions for all your related queries.

Role of Maker in Reviewing Promissory Note

It is crucial for the individual creating a promise to pay to give careful attention while reviewing the promissory note. The maker must ensure that all terms and conditions are clear, accurate, and suitable for their financial circumstances. They should be aware of the interest rates, payment periods, and any penalties for delayed payments.

Furthermore, they need to verify if all borrowers’ names and addresses are accurately mentioned in the promissory note and whether all parties have signed it. It’s also critical to go through the fine print to avoid any hidden charges or clauses that might observe harm later on.

In addition, makers must understand the consequences of not adhering to the agreement. Defaulting on a loan can seriously harm your credit record and could result in legal action against you.

To ensure a smooth process, it is recommended that makers consult a professional or seek legal advice before signing the promissory note. Doing so will help them avoid any potential issues unknowingly.

By following these steps in conjunction with conducting thorough research into various loan options available, Makers can create an agreement they fully understand and abide by.

When it comes to approving a promissory note, the payee holds all the cards… or in this case, all the paper.

Role of Payee in Approving Promissory Note

As the recipient of a promissory note, it is essential for the payee to review and approve the document before accepting it. Verifying the terms, interest rate, and repayment schedule can ensure that the payee’s interests are protected in case of default by the borrower.

Upon thorough examination, if discrepancies are found in the promissory note, it is crucial to communicate them with the borrower and amend the document accordingly. It is recommended to consult with legal advisors or financial experts to assist in drafting a fair and legal binding agreement.

In addition to reviewing and approving promissory notes, payees must also keep records of payment schedules and deadlines. This recordkeeping ensures that payments are on schedule, preventing defaults and allowing for timely establishment of creditworthiness.

To conclude, by actively participating in the approval process of a promissory note and diligently maintaining payment records, payees can establish secure financial relationships with borrowers while mitigating risks associated with lending money.

Don’t let legal requirements scare you, unless of course you’re a promissory note with something to hide.

Legal Requirements for Approval of Promissory Note

A promissory note is a legal document that entails the borrower’s promise to pay back the lender with a specific amount of money with or without interest within an agreed period. Approval of this document entails fulfilling certain requirements.

To approve a promissory note, several legal requirements have to be met. These include identifying the parties involved, detailing payment amounts and modes, establishing repayment terms, setting the date of execution and maturity dates, among others.

Promissory Note Legal Requirements Description
Identification of Parties Involved The parties involved must be clearly identified in the document
Payment Amounts and Modes The document should specify the amount borrowed and modes of payment
Repayment Terms This refers to how and when payments will be made by the borrower.
Date of Execution and Maturity Dates The promissory note must indicate its execution date and maturity date specifying when final payment is due.

It is crucial to note that any changes to the promissory note should entail written consent from both parties.

When reviewing a promissory note, it’s essential to ensure that all legal requirements are met before approval is granted. Failure to do so may render the agreement unenforceable in court.

Recently, John drafted a promissory note for his business associate but failed to include some critical elements. The result was challenges when it came to collecting payments from his associate. This example highlights the importance of adhering to legal requirements when developing promissory notes.

Skipping promissory note review is like playing Russian Roulette with your finances – eventually, the bullet’s going to hit.

Consequences of Not Reviewing and Approving Promissory Note

To understand the risks associated with not reviewing and approving a promissory note, delve into the consequences. Legal liability for the maker and financial risks for the payee will be discussed in this section. By understanding these two sub-sections, you can gain insights into the repercussions of not reviewing and approving a promissory note.

Legal Liability for Maker

When a promissory note is not reviewed and approved, the maker may face legal liability. The maker is responsible for repaying the lender according to the terms specified in the note. Without proper review and approval, there may be discrepancies that lead to disputes between the lender and maker.

In addition to potentially facing legal action, not reviewing and approving a promissory note can also harm the relationship between the lender and maker. It is essential for both parties to understand their obligations and expectations outlined in the note to avoid any misunderstandings or miscommunications.

Failing to review and approve a promissory note can result in significant financial consequences for the maker. For example, if there are errors or discrepancies in the document that result in late payments or missed deadlines, it could impact credit scores and financial standing.

To avoid these potential risks, it is vital to take adequate time to review and approve all aspects of a promissory note before signing it. Doing so could save significant money, time, and relationships with lenders in the long run while avoiding any legal liabilities.

Nothing says financial risk like accepting a promissory note from someone who ‘doesn’t believe in deadlines’.

Financial Risks for Payee

Failure to review and approve a promissory note may lead to severe financial implications for the payee. In addition, this error could result in legal disputes, which would incur substantial expenses that would have otherwise been avoidable.

Nonetheless, if the promissory note includes any errors or omissions, the payee may not receive the funds owed to them as per the agreement. Similarly, if the borrower defaults or delays repayment, it can lead to unforeseen financial burdens on the payee.

Therefore, it is essential to ensure all terms are agreed upon in writing and confirmed by both parties before any payment is made. This will provide some legal protection against any possible breaches of contract and also save time and money for all parties involved.

According to an article published by Forbes magazine in October 2019, failing to review or approve a written agreement is one of the most common mistakes entrepreneurs make while starting their businesses.

Remember, not reviewing and approving a promissory note is like skipping a traffic light – it may feel like a small, insignificant decision at the time, but the consequences can be catastrophic.


In analyzing a promissory note, it is important to determine the responsible party for reviewing and approving it. Generally, the lender drafts and reviews the terms of the note, while the borrower agrees to these conditions before signing. Once both parties have signed, execution of the agreement becomes binding. Nevertheless, in certain instances where legal advice is needed or when complex agreements are involved, independent legal counsel may be consulted to ensure that all terms are fair and equitable. Ultimately, adherence to legal requirements and sound business principles should guide all parties involved in drafting and executing a promissory note.

It is crucial to understand that whoever signs the promissory note is accountable for fulfilling its terms. Lenders review and develop these notes with their interests in mind since they are at risk of losing money if payments default; likewise, borrowers must ensure they are familiar with all provisions of the contract and can commit to payment plans accordingly. Moreover, before accepting any type of loan or financial service arrangement, it’s important to conduct due diligence on all potential lenders involved.

Finally, one cautionary tale involves a young adult who eagerly accepted loans without fully understanding repayment details nor conducting research into alternatives – solely because they were from a reputable source. The consequence was being saddled with hefty debt obligations years later with no clear exit strategy nor savings plan in place.

In summary, every party involved (including both borrowers and lenders) has a critical responsibility when reviewing and approving contracts such as promissory notes. To mitigate risks from any unforeseen issues down the road, it is best practice for anyone engaged in financial dealings regularly monitor their credit reports and stay informed on industry changes as well as emerging trends affecting transactions.

Frequently Asked Questions

1. Who creates a promissory note?

A promissory note is usually created by the lender or creditor who is lending the money to the borrower or debtor.

2. Who is responsible for reviewing and approving a promissory note?

The lender or creditor is responsible for reviewing and approving a promissory note after it has been created.

3. What is reviewed when approving a promissory note?

When approving a promissory note, the lender or creditor will review the terms of the loan including the amount borrowed, interest rate, and repayment schedule.

4. Can a promissory note be modified after it has been approved?

Yes, a promissory note can be modified after it has been approved if both the lender and borrower agree to the changes. These changes should be documented in writing and signed by both parties.

5. Do promissory notes need to be notarized?

Promissory notes do not need to be notarized, but some lenders may choose to have them notarized to protect against fraud or dispute.

6. Who keeps the promissory note after it has been approved?

The lender or creditor usually keeps the promissory note after it has been approved as proof of the loan agreement and repayment terms.

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Introduction Here, we will guide you on the process of filling out a customs import declaration form. Understanding how to complete this form is crucial for individuals or businesses importing goods through a border. This process ensures transparency and legality in international trade. To

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How Purchase Order Finance Can Help Your Business Grow

Understanding Purchase Order Finance Exploring the World of Purchase Order Finance Purchase order finance is a financing solution that helps businesses purchase materials from suppliers without having to pay upfront. It can help companies conserve cash flow and fulfill more orders, thereby increasing revenue.

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How Documentary Collections Reduce Risk in International Trade

Introduction to Documentary Collections Documentary Collections: Managing Risk in International Trade Documents play a significant role in international trade as they provide proof of transactions and assure that goods are delivered as expected. Documentary collections are an essential trade finance tool that buyers and

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Where Can Small Exporters Get Postshipment Loans?

Introduction to Postshipment Loans for Small Exporters As small exporters look for ways to expand their business, one option they ought to consider is post shipment loans. These loans are designed to help with the financing of an export deal after the goods have

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Receivables Finance Myths That Prevent Companies from Using It

Myths about Receivables Finance Myths about Receivables Finance prevent companies from exploring its potential. It is necessary to debunk these misconceptions to understand its benefits and make informed decisions. Firstly, businesses mistakenly believe that it is expensive and only for large companies. However, it

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How to Negotiate Favorable Terms in an Inventory Finance Deal

Understanding Inventory Finance Deals The intricacies of financing inventory can be challenging to comprehend. To grasp the concept, it’s essential to understand the basics of an inventory financing deal. Term Description Definition Inventory financing refers to a revolving line of credit that allows borrowers

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Who Can Benefit from Purchase Order Finance and Why?

Introduction to Purchase Order Finance Purchase Order Finance is a funding option for businesses that have already received purchase orders but have limited resources to create and deliver the products. It helps businesses fulfill their orders without depleting their capital by financing the manufacturing

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Before Using Commodity Trade Finance Consider These Factors

Factors to Consider Before Using Commodity Trade Finance Before engaging in Commodity Trade Finance, it is crucial to consider various factors that could affect the outcome of your investment. Firstly, analyzing the commodity’s market value, supply, and demand is essential. Also, assessing the political

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Who Provides Supply Chain Finance – Major Players

Introduction to Supply Chain Finance Supply Chain Finance, also known as SCF, is an innovative and mutually beneficial financial solution. It supports both buyers and suppliers by offering working capital, immediately freeing up cash flow. The highly flexible SCF programs have become an essential

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How To Cancel An Import Or Export Trade Facility Legally?

Understanding Import and Export Trade Facilities Import and Export Trade Facilities play a crucial role in international business transactions. These facilities allow businesses to import and export goods from one country to another, ensuring a smooth trade process. The following table illustrates the key

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How To Void A Promissory Note Legally?

Introduction to Promissory Notes Promissory notes are legal documents in which a borrower promises to pay a lender a specific amount of money within a specified timeframe. These notes are often used for various financial transactions, including personal loans, business financing, and the purchase

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How to Choose the Right Marine Cargo Insurance Deductible

Understanding Marine Cargo Insurance Deductibles Marine cargo insurance deductibles are crucial to ensure businesses do not face financial loss from unforeseen circumstances during international trade. Understanding the various aspects of these deductibles is essential for making informed decisions. To help navigate the different types

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Without Blockchain, Trade Finance is Prone to Errors and Delays

The Importance of Blockchain in Trade Finance Blockchain Technology’s Significance in International Trade Finance Efficient and secure management of payments, trade documentation, and banking activities is paramount in international trade finance. In this context, blockchain technology has emerged as a game-changer, enabling transparency and

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