Promissory Note - Forgivable Loan
What is this form?
The Promissory Note - Forgivable Loan is a legal document that outlines a loan agreement between an employer and an employee. Its primary purpose is to facilitate a loan that is forgivable based on certain conditions, such as the employee's continued employment with the employer. This form differs from standard promissory notes as it includes specific terms for forgiveness, providing a clear understanding of obligations and potential benefits for both parties.
What’s included in this form
- Name of the employee and employer, establishing the parties involved.
- Amount of the loan, which specifies the loan principal.
- Forgiveness schedule, detailing how much of the loan will be forgiven on specific dates provided the employee remains employed.
- Conditions under which the loan will remain due, including employment termination for cause.
- Purpose of the loan, confirming that it is for relocation or similar expenses.
- Default provisions, outlining the consequences of non-payment.
Common use cases
This form is needed when an employer offers a loan to an employee, typically to assist with relocation expenses or housing purchases. It is particularly useful when the funding is contingent on the employee remaining with the company for a specified duration. Use it to clarify the terms and ensure mutual understanding regarding repayment and forgiveness conditions.
Who needs this form
- Employers looking to provide financial assistance to new hires.
- Employees who are relocating for work and may benefit from a forgivable loan.
- Companies that want to formalize loan agreements with clear terms to avoid misunderstandings.
How to prepare this document
- Identify the parties by entering the names of the employer and employee at the beginning of the form.
- Specify the loan amount in the designated field.
- Detail the forgiveness schedule by providing the amounts and corresponding dates when forgiveness will occur.
- Enter the due date by indicating the conditions under which repayment will be required.
- Include the purpose of the loan, confirming it is for employee relocation.
- Sign and date the document to finalize the agreement.
Notarization guidance
This form does not typically require notarization to be legally valid. However, some jurisdictions or document types may still require it. US Legal Forms provides secure online notarization powered by Notarize, available 24/7 for added convenience.
Common mistakes
- Failing to specify clear dates for forgiveness, leading to confusion over repayment obligations.
- Not including the purpose of the loan, which can create ambiguity about how the funds should be used.
- Omitting the name of the state governing the agreement, which may affect enforceability.
Why complete this form online
- Convenience of immediate access to a legally vetted document.
- Editability allows customization to fit specific employer-employee agreements.
- Reliable format ensures all necessary components are included for ensuring clarity.
Form popularity
FAQ
The loan doesn't have to be repaid to the extent it's used to cover the first 24 weeks (eight weeks for those who received their loans before June 5, 2020) of the business's payroll costs, rent, utilities and mortgage interest. However, at least 60% of the forgiven amount must be used for payroll.
Promissory notes are a valuable legal tool that any individual can use to legally bind another individual to an agreement for purchasing goods or borrowing money. A well-executed promissory note has the full effect of law behind it and is legally binding on both parties.
From a tax standpoint, the amount of the loan plus interest forgiven in any given year is treated as income to the physician. Forgivable loans differ from traditional signing bonuses in that signing bonuses are considered compensation and are fully taxable in the year paid.
A promissory note is a contract, a binding agreement that someone will pay your business a sum of money. However under some circumstances if the note has been altered, it wasn't correctly written, or if you don't have the right to claim the debt then, the contract becomes null and void.
A promissory note is usually held by the party owed money; once the debt has been fully discharged, it must be canceled by the payee and returned to the issuer.
A forgivable loan, also called a soft second, is a form of loan in which its entirety, or a portion of it, can be forgiven or deferred for a period of time by the lender when certain conditions are met.However, if the conditions are not met the loan has to be repaid usually with interest.
The debt owed on a promissory note either can be paid off, or the noteholder can forgive the debt even if it has not been fully paid.The value of the amount of debt forgiven may be deemed either taxable income, or a gift subject to the federal estate and gift tax.
Before a promissory note can be canceled, the lender must agree to the terms of canceling it. A well-drafted and detailed promissory note can help the parties involved avoid future disputes, misunderstandings, and confusion. When canceling the promissory note, the process is referred to as a release of the note.
