Demand Note Template

In plain language: Identifies the lender (holder) and borrower (maker) by full legal name and address, and states the exact principal sum advanced.

Common mistake: Using a nickname or trade name instead of the borrower's full legal name. If you need to pursue collection, the note must name the party with legal standing to be sued.

In plain language: States the annual interest rate and specifies how interest accrues — typically simple interest on the outstanding principal from the date of advance.

Common mistake: Leaving the interest rate blank or writing 'TBD.' A note with no stated rate is treated as interest-free in most jurisdictions, and tax authorities may impute interest income to the lender regardless.

In plain language: Establishes that the full principal and accrued interest become due immediately — or within a short defined window — upon the lender's written demand, with no prior notice otherwise required.

Common mistake: Not specifying the delivery method for demand notices. A demand delivered by email to an address the borrower no longer monitors can spark a dispute about when the repayment clock started.

In plain language: Confirms the borrower's right to repay all or any portion of the principal at any time without penalty, reducing the outstanding balance on which interest accrues.

Common mistake: Omitting this clause and leaving the prepayment right ambiguous. Some jurisdictions imply a prepayment right; others do not — an explicit clause eliminates the uncertainty.

In plain language: Defines what constitutes default — primarily failure to pay following a demand — and grants the borrower a short cure window before the lender may pursue remedies.

Common mistake: Setting no cure period at all. Courts in some jurisdictions expect a reasonable opportunity to cure before a lender can sue, and a zero-day cure window can make the default clause harder to enforce.

In plain language: Makes the full balance automatically due if the borrower becomes insolvent, files for bankruptcy, or has a judgment entered against them — without a separate demand being required.

Common mistake: Relying solely on the demand mechanic and omitting an automatic acceleration trigger. In an insolvency, waiting to serve a formal demand can put the lender behind secured creditors who act faster.

In plain language: Requires the borrower to reimburse the lender for reasonable legal fees and collection costs incurred in enforcing the note after default.

Common mistake: Using a reciprocal fee-shifting clause that also awards fees to the borrower if they prevail. This increases litigation risk for the lender and is rarely appropriate in a simple promissory note.

In plain language: Specifies which jurisdiction's law governs the note and where any legal proceedings must be brought, providing certainty when lender and borrower are in different locations.

Common mistake: Choosing a governing jurisdiction with no connection to either party. Courts may decline to apply a foreign law that has no reasonable nexus to the transaction, creating unpredictable outcomes.

In plain language: The borrower waives the formal common-law rights to presentment, demand, notice of dishonor, and protest — simplifying the lender's enforcement path.

Common mistake: Skipping this clause in states or provinces where these formalities are still legally required for enforcement. Without a waiver, a lender who skips the formal demand ritual may lose the right to collect.

In plain language: Captures the borrower's signature, printed name, and the date of execution — and optionally a co-signer or guarantor signature — to make the note enforceable.

Common mistake: Dating the note on the disbursement date rather than the actual signing date when those differ. Inconsistent dates create ambiguity about when interest began accruing and can trigger questions about whether consideration was actually exchanged.

A demand note is a promissory note with no fixed maturity date — the borrower is required to repay the full principal and accrued interest immediately upon the lender's written request. Unlike installment loans, there is no predetermined repayment schedule. Demand notes are commonly used in family loans, shareholder advances, and short-term commercial lending where the lender wants flexibility to call the loan at any time.

All demand notes are promissory notes, but not all promissory notes are demand notes. A standard promissory note has a fixed maturity date and often a structured repayment schedule. A demand note has no maturity date and becomes due only when the lender calls it. Use a demand note when you want lender flexibility; use a fixed-term promissory note when the borrower needs a predictable repayment schedule.

A demand note is generally enforceable when it is signed by the borrower, states a definite principal amount and interest rate, and clearly sets out the demand and repayment mechanics. Courts in most jurisdictions treat demand notes as valid negotiable instruments under the Uniform Commercial Code in the US or equivalent legislation elsewhere. Having a lawyer review the document is advisable when the loan amount is significant or the parties are in different jurisdictions.

Notarization is not required for a demand note to be enforceable in most US states, Canadian provinces, or UK jurisdictions. A witnessed signature by the borrower is typically sufficient. However, notarization adds an extra layer of authentication that can simplify enforcement if the borrower later disputes their signature.

For arm's-length commercial loans, the rate should reflect prevailing market rates for comparable short-term credit. For family loans or related-party advances, use at least the IRS Applicable Federal Rate (AFR) — published monthly — to avoid imputed-interest income and potential gift tax consequences. In Canada, the CRA prescribed rate applies to related-party loans. Setting any rate above zero and at or above these minimums protects both parties from unintended tax consequences.

The lender sends a written demand notice to the borrower at the address specified in the note, using the delivery method specified in the document — commonly registered mail, overnight courier, or email with delivery confirmation. The borrower then has the cure period stated in the note (typically three to ten business days) to remit payment in full before the lender can pursue collection remedies.

Yes — owner-to-company and shareholder-to-company advances are one of the most common uses for demand notes. A signed demand note with a market interest rate is the primary evidence tax authorities use to confirm the advance is a genuine loan rather than a disguised dividend, salary, or capital contribution. Ensure both parties record the note correctly on their balance sheets and that interest is actually paid or accrued in each tax year.

If the borrower fails to pay within the cure period specified in the note, the lender may pursue all available legal remedies — filing a civil lawsuit to obtain a judgment, garnishing wages or bank accounts, or placing a lien on property. If the note includes a guarantor, the lender can also pursue the guarantor simultaneously. Consulting a lawyer before initiating collection is advisable, particularly if the borrower has initiated insolvency proceedings, which trigger automatic stays in most jurisdictions.

Yes — every jurisdiction has usury laws that cap the maximum lawful interest rate on private loans. In the US, limits vary by state and loan type, ranging from roughly 6% to 45% per annum depending on the jurisdiction and borrower type. In Canada, the Criminal Code caps interest at an effective annual rate of 60%. In the UK, there is no statutory cap for most commercial loans, but the Financial Conduct Authority regulates consumer credit rates. Exceeding the applicable limit can void the interest clause or the entire note.