Interest Only Promissory Note Template for Switzerland

An Interest Only Promissory Note is a specialized financial document that structures loan repayments differently from traditional notes. Instead of paying both principal and interest over time, you make regular interest payments while the full principal amount remains due at the note's maturity date. This arrangement can provide significant cash flow benefits when you need financing but want to preserve working capital or when your income stream better supports periodic interest payments rather than full amortization.

When do you need this document?

You'll typically use an Interest Only Promissory Note in real estate investment scenarios where rental income covers interest payments but you plan to refinance or sell before maturity. Corporate borrowers often employ this structure for bridge financing, acquisition funding, or when expecting significant cash inflows from projects or asset sales. Private lending arrangements between individuals frequently use interest-only terms when the borrower has irregular income patterns or is waiting for inheritance, business sale proceeds, or other substantial future payments. Investment scenarios involving dividend-paying securities or rental properties also benefit from this structure, as the underlying asset generates income to service the interest while preserving the principal investment.

Key legal considerations

Your Interest Only Promissory Note must clearly specify the principal amount, interest rate calculation method, and payment frequency to avoid disputes. The document should include default provisions outlining consequences of missed payments, including potential acceleration of the entire balance. Security provisions, if any, must be precisely defined, along with the rights of guarantors or co-signers. Pay careful attention to interest rate caps and disclosure requirements, especially in consumer lending situations. The note should address what happens at maturity, including renewal options, conversion to amortizing payments, or balloon payment requirements. Include force majeure clauses and specify jurisdiction for dispute resolution to protect both parties' interests.

Legal requirements in Switzerland

Under Swiss law, your promissory note must comply with Articles 312-318 of the Swiss Code of Obligations governing loan agreements, which establish fundamental rights and obligations for lenders and borrowers. The document must meet negotiable instrument requirements under Articles 973-1155 if you intend it to be transferable. Swiss Banking Act provisions apply when financial institutions are involved, particularly regarding interest rate regulations and disclosure requirements. Consumer protection under the Swiss Consumer Credit Act (KKG) requires specific disclosures and may impose interest rate limitations when individual borrowers are involved. The principle of good faith under Article 2 of the Swiss Civil Code applies to all contractual arrangements, requiring fair dealing between parties. Ensure your note includes proper identification of all parties with full legal names and addresses, and consider notarization requirements for larger amounts or when enhanced enforceability is desired.