![Minnesota Promissory Note Template [PDF + Download]](/_next/image?url=%2Fimages%2Fdocuments%2Fpromissory-note-general.png&w=3840&q=75)
A promissory note is a legal document that formalizes loan agreements in Minnesota by recording a borrower's promise to repay a specific debt under agreed-upon terms. It outlines essential details such as the loan amount, interest rate, and repayment method, ensuring parties have a legally binding document.
In this article, we'll explore two types of promissory notes, their enforceability requirements, and other essential aspects to fully understand the promissory note meaning.
So, whether you're looking for a reliable promissory note template or want to learn more about promissory notes in Minnesota, this guide will help you grasp the essentials. Let's get started!
Types of Promissory Notes in Minnesota
Promissory notes in Minnesota are categorized into two main types—secured and unsecured—depending on whether the debt is secured by collateral.
Types of Promissory Notes
#1. Secured Promissory Notes
A secured promissory note is less common but provides greater security for the lender. In this case, the borrower backs their promise to repay with collateral—an asset or property equal to or exceeding the debt value.
If the borrower defaults, the lender can seize the collateral. This type of promissory note often results in better loan terms, such as lower interest rates and larger loan amounts.
#2. Unsecured Promissory Notes
An unsecured promissory note does not include collateral, relying solely on the borrower's promise to repay. This type is more common when the parties have a close relationship or the borrower's financial situation is well-known to the lender.
However, since there is no collateral, these loans typically come with higher interest rates and smaller loan amounts.
Signing Requirements for Promissory Notes in Minnesota
A promissory note in Minnesota must meet specific requirements to be legally enforceable and considered valid proof in court. Let’s take a closer look at the requirements:
Signing Requirements
The note must be in written form.
The parties involved need to be identified, including their legal names and contact information.
Essential elements of the Minnesota debt agreement need to be outlined, including the amount, payment methods, due dates, and interest rates.
The borrower's signature has to be included to confirm the content
While witnessing and notarization are not strictly required, they are strongly recommended for added legal protection, especially for larger loans. Additionally, reviewing a promissory note sample is vital to ensure all necessary elements are included correctly and to confirm its legal validity.
Statutory Considerations for Minnesota Promissory Notes
Promissory notes in Minnesota must comply with state usury laws to ensure their validity. These laws set limits on interest rates depending on the type of loan and whether a contract is in place. A promissory note can be used for both personal and business loans, but interest rate caps vary. Below is a breakdown of applicable laws:
Loan Type | Interest Rate Cap | Statute Reference |
With a Contract | 8% | |
Without a Contract | 6% per year | |
Business on Agricultural Loans (<$100k) | 4,5% above 90-day commercial paper discount rate | Sec. 334.011 Subd.1 |
Loans by Charitable Organizations (<$10k) | 16% | |
Loans Secured by Savings Account | 2% over the interest rate on the account | |
Contracts Over $100,00 | No maximum (except for mortgage loans) | |
Monetary Judgments <$50k | Based on 1-year US Treasury bill yield | |
Monetary Judgments >$50k | 10% |
By adhering to these Minnesota promissory note requirements, lenders can create an enforceable promissory note that complies with state laws.
How To Enforce a Promissory Note in Minnesota
To enforce a promissory note in Minnesota, the lender must take action if the borrower fails to repay as agreed. The first step is to send a written demand for payment, giving the borrower a chance to resolve the issue.
If the borrower still doesn’t pay, the lender can file a claim in the Minnesota Small Claims Court (Conciliation Court) for unpaid amounts up to $20,000. For larger amounts, a lawsuit may be filed in district court.
On the other hand, having an enforceable promissory note in Minnesota is essential for legal action, meaning it must be properly signed and documented. The statute of limitations to file a claim is six years from the date the borrower defaults.
How Can a Promissory Note in Minnesota Be Changed or Revoked?
A promissory note in Minnesota can be changed or revoked if both the lender and borrower agree to new terms. This could involve adjusting payment dates, reducing the amount owed, or canceling the debt altogether. It’s essential to document these changes in writing to make sure they are legally enforceable.
Just like a repayment agreement in Minnesota, the modified promissory note should clearly outline the updated terms and be signed by both parties. Verbal changes are risky and may not hold up in court. A written agreement protects both sides and ensures that everyone understands their new obligations.