Promissory Note With Acceleration Clause Template

In plain language: Identifies the lender and borrower as legal entities or individuals, states the principal loan amount, and records the date the note is executed and funds are advanced.

Common mistake: Using informal names or trade names instead of full legal names. If the borrower defaults and enforcement is required, the note must identify the correct legal party to sue.

In plain language: States the annual interest rate, whether it is fixed or variable, how it is calculated (simple or compound), and the basis for daily accrual.

Common mistake: Omitting the calculation basis (365-day vs. 360-day year). The difference affects accrued interest on large principals and has been the subject of litigation in commercial lending disputes.

In plain language: Sets out the payment frequency, payment amount, first payment date, and whether payments are interest-only, fully amortizing, or structured with a balloon.

Common mistake: Leaving the repayment structure ambiguous by stating only the maturity date without specifying interim payments. Courts have had to imply repayment terms, with results unfavorable to the lender.

In plain language: Grants the lender the right to declare the entire unpaid balance — principal plus accrued interest — immediately due and payable upon the occurrence of any defined default event.

Common mistake: Forgetting to specify that acceleration is at the lender's option rather than automatic. Automatic acceleration can trigger unintended consequences — including accelerating subordinate obligations — before the lender is ready to enforce.

In plain language: Lists the specific circumstances that constitute a default, such as missed payments, insolvency, bankruptcy filing, breach of a related agreement, or material misrepresentation.

Common mistake: Defining default only as missed payment and omitting insolvency, judgment liens, and breach of related collateral agreements. A borrower can be technically current on payments while their financial position deteriorates to the point where collection becomes impossible.

In plain language: Gives the borrower a defined period — typically 5 to 30 days — to remedy a default after written notice from the lender, before acceleration or other remedies are exercised.

Common mistake: Including no cure period at all. Courts in many jurisdictions imply a reasonable cure opportunity even when the note is silent; specifying the period gives the lender control over the timeline and reduces legal risk.

In plain language: Imposes a fixed fee or percentage charge on any payment not received within a defined grace period after its due date.

Common mistake: Setting late fees as a flat dollar amount rather than a percentage of the overdue payment. On a large loan, a flat $25 late fee is commercially meaningless and provides no incentive for timely payment.

In plain language: States whether the borrower may repay the loan early, and if so, whether a prepayment penalty applies and how it is calculated.

Common mistake: Remaining silent on prepayment. In many jurisdictions, silence means prepayment is permitted without penalty — lenders who intend to charge a yield-maintenance fee must expressly state it.

In plain language: Specifies which jurisdiction's law governs interpretation and enforcement of the note, and where any legal proceedings must be filed.

Common mistake: Choosing a governing law with no connection to either party. Courts may disregard a governing-law clause that appears designed to avoid the borrower's home-state consumer protections or usury limits.

In plain language: The borrower formally waives the right to require the lender to present the note, make formal demand, give notice of dishonor, or protest before enforcement — streamlining collection.

Common mistake: Omitting the waiver clause entirely and relying on state-law defaults. Several states require formal presentment and demand before a note holder can sue — the waiver clause removes this procedural barrier.

A promissory note with an acceleration clause is a written, signed promise to repay a specified loan amount under defined terms — including a provision that makes the entire unpaid balance immediately due if the borrower defaults. The acceleration clause is the lender's most powerful collection tool: rather than suing for each missed installment separately, the lender can call the full balance due at once and pursue enforcement in a single action.

Include an acceleration clause any time there is meaningful default risk — specifically when the loan is unsecured, when the borrower's financial position could deteriorate, or when the repayment term exceeds 12 months. Short-term loans between trusted parties with strong collateral may not require one, but for most commercial and private lending situations the acceleration clause is standard practice and is expected by sophisticated lenders and borrowers alike.

In most US states, Canada, and the UK, a promissory note is legally binding when signed by the borrower (maker) — notarization is generally not required for enforceability. However, notarization authenticates the signatures and makes the document self-proving in court, which simplifies enforcement if the borrower later claims they did not sign. Some jurisdictions require notarization for notes secured by real property.

An unsecured promissory note, like this template, is backed only by the borrower's personal or corporate promise to pay. A secured promissory note is backed by a specific asset — real estate, equipment, receivables — that the lender can seize upon default. Secured notes generally carry lower interest rates because the lender has a defined recovery path. Unsecured notes rely entirely on the acceleration clause and subsequent judgment enforcement for collection.

When a borrower files for bankruptcy, an automatic stay under US Bankruptcy Code §362 typically halts the lender's ability to enforce the acceleration clause or collect on the note outside the bankruptcy proceeding. The lender must file a proof of claim and may need to seek relief from the automatic stay to pursue collateral. In Canada, similar stay protections apply under the Companies' Creditors Arrangement Act and the Bankruptcy and Insolvency Act. Including bankruptcy as a defined default event is still important — it preserves the acceleration right for use after stay relief is obtained.

The maximum allowable rate depends on the jurisdiction and whether the note is a consumer or commercial transaction. In the US, usury laws vary by state — consumer loan limits range from 10% to 36% annually depending on the state, while many states exempt business-to-business loans above a threshold principal amount. In Canada, the Criminal Code sets a maximum effective annual rate of 60% for all loans. In the UK, consumer credit regulations cap certain loan rates, while commercial rates are largely unregulated. Always confirm the applicable ceiling before drafting.

Unless the note expressly prohibits or penalizes prepayment, the borrower generally has the right to repay early in most jurisdictions. Lenders who want to preserve expected interest income should include a prepayment penalty clause — typically a percentage of the outstanding principal during a defined penalty period. For longer-term commercial notes, a yield-maintenance formula may be used instead of a flat percentage.

Without an anti-waiver clause, a pattern of accepting late payments or overlooking minor defaults can create a course-of-dealing argument that the lender waived strict compliance. With a properly drafted anti-waiver clause, acceptance of any payment — on time, late, or partial — does not waive the lender's right to strictly enforce the note going forward. This is one of the most important protective provisions a lender can include.

For straightforward loans between businesses in a single jurisdiction with standard repayment terms, a high-quality template is typically sufficient. Engage a lawyer when the loan exceeds $100,000, when collateral is involved, when the borrower is in a different jurisdiction, when the transaction is cross-border, or when the note is part of a broader financing arrangement with subordination or intercreditor agreements. A 1–2 hour legal review typically costs $300–$600 and is worthwhile for any loan where collection risk is significant.