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Subordinated Promissory Note for the United States

Subordinated Promissory Note Template for United States

A Subordinated Promissory Note is a legally binding debt instrument used in the United States that documents a promise to pay a specific sum of money, with the distinct characteristic that the debt is subordinate to other specified obligations of the borrower. The document outlines payment terms, interest rates, and specific subordination provisions, while complying with federal and state securities laws, including UCC requirements and applicable usury restrictions.

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Subordinated Promissory Note

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What is a Subordinated Promissory Note?

The Subordinated Promissory Note is commonly used in complex financing arrangements where multiple layers of debt exist. This document is particularly relevant when companies or individuals need to raise additional capital while maintaining existing senior debt relationships. Under U.S. law, it must clearly specify the subordination terms, payment schedule, interest rates, and default provisions. The note's subordinated status means it ranks below senior debt in priority of payment, particularly in bankruptcy or liquidation scenarios. This type of instrument is frequently used in mezzanine financing, growth capital arrangements, and structured finance transactions.

What sections should be included in a Subordinated Promissory Note?

1. Promise to Pay: Principal amount, payment terms, and unconditional promise to pay by the maker to the payee

2. Interest Rate: Specified interest rate, calculation method, and payment frequency of interest

3. Payment Schedule: Timing and amount of payments, including maturity date and method of payment

4. Subordination Terms: Explicit subordination provisions detailing the note's subordinate status to senior debt

5. Events of Default: Conditions constituting default and consequences thereof

What sections are optional to include in a Subordinated Promissory Note?

1. Security Interest: Terms regarding any collateral securing the note, including description and enforcement rights

2. Conversion Rights: Terms and conditions for converting the debt to equity, including conversion price and mechanism

3. Acceleration Clause: Conditions under which the holder may demand immediate repayment of the entire outstanding amount

What schedules should be included in a Subordinated Promissory Note?

1. Payment Schedule: Detailed amortization table showing payment dates, amounts, and allocation between principal and interest

2. Senior Debt Schedule: Comprehensive list of senior debt obligations to which this note is subordinate

3. Collateral Description: Detailed description of any collateral securing the note, including location and identification details

Authors

Alex Denne

Head of Growth (Open Source Law) @ tiktok成人版 | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Jurisdiction

United States

Document Type

Promissory Note

Sector

Banking

Cost

Free to use
Clauses
























Industries

Securities Act of 1933: Federal law governing securities issuance - relevant if the promissory note could be classified as a security

Securities Exchange Act of 1934: Federal law regulating secondary trading of securities and establishing SEC oversight

Truth in Lending Act (TILA): Federal law requiring disclosure of key terms and costs in lending agreements

Dodd-Frank Act: Post-2008 financial reform law affecting lending practices and financial instruments

Federal Reserve Regulations: Regulations specifically governing subordinated debt structures and requirements

State Blue Sky Laws: State-specific securities regulations governing the offering and sale of securities

State Usury Laws: State-specific laws setting maximum permissible interest rates and lending terms

State Commercial Codes: State-specific adaptations of the Uniform Commercial Code

UCC Article 3: Uniform Commercial Code provisions governing negotiable instruments

UCC Article 9: Uniform Commercial Code provisions governing secured transactions

Bankruptcy Code Section 510: Federal bankruptcy provisions specifically addressing subordination of claims

Internal Revenue Code: Federal tax provisions affecting debt treatment, interest deductibility, and Original Issue Discount rules

Teams

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