Unsecured Loan Note Template for the United States

An Unsecured Loan Note is a legally binding promissory note that documents a loan agreement where no collateral secures the debt. Under United States law, this financial instrument creates an enforceable obligation for the borrower to repay the specified amount according to agreed terms, with the lender's only recourse being the borrower's creditworthiness and legal remedies upon default.

When do you need this document?

You need an Unsecured Loan Note whenever you're lending or borrowing money without collateral backing the loan. This commonly occurs in personal lending between family members or friends, small business loans where collateral isn't required, bridge financing for real estate transactions, or inter-company loans within corporate structures. The document is also essential for formalizing verbal loan agreements to ensure legal enforceability and clear repayment terms. Whether you're a private lender seeking to protect your investment or a borrower wanting to establish clear obligations, this note provides the necessary legal framework for unsecured lending relationships.

Key legal considerations

Several critical legal elements must be addressed in your Unsecured Loan Note. The principal amount and interest rate must comply with state usury laws, which vary significantly across jurisdictions and may cap maximum allowable rates. Payment terms should specify the repayment schedule, including frequency, amount, and due dates to avoid ambiguity. Default provisions must clearly define what constitutes a breach and outline consequences, including acceleration clauses that make the entire balance immediately due. Include personal guarantees if additional security is desired, ensuring guarantors understand their liability. Address late fees, prepayment penalties, and attorney's fees to cover potential collection costs. Consider including choice of law and jurisdiction clauses to determine which state's laws govern the agreement and where disputes will be resolved.

Legal requirements in United States

Federal law mandates compliance with the Truth in Lending Act (TILA) and Regulation Z for consumer loans, requiring disclosure of the Annual Percentage Rate (APR), finance charges, and total payment amount. The Equal Credit Opportunity Act (ECOA) prohibits discrimination in lending decisions based on protected characteristics. State usury laws impose maximum interest rate limits that vary by state and loan type, with violations potentially voiding the entire interest obligation. Some states require written loan agreements for amounts exceeding specific thresholds or loan terms longer than certain periods. The Fair Credit Reporting Act (FCRA) governs credit checks and reporting of loan performance to credit agencies. Documentation must include proper signatures, dates, and witness requirements as specified by state law. Consider notarization requirements in your jurisdiction, as some states mandate notarized signatures for enforceability or to facilitate collection remedies.