Legal Term
analyzing small business loan promissory note with default interest
Legal Definition
The legal and financial review of a business loan agreement's provision that imposes a significantly higher interest rate upon the borrower's failure to meet specific contractual obligations, such as timely payment or maintaining required financial ratios, as governed by state usury laws and the terms of the note itself.
In Plain English
Checking a business loan contract to see exactly how much extra you'll owe if you miss a payment or break a rule, and whether that extra charge is legal.
Example in a Contract
DEFAULT INTEREST. Upon the occurrence of an Event of Default, the unpaid principal balance of this Note shall, at the option of the Lender, bear interest at a rate equal to the lesser of (a) 5.00% per annum in excess of the rate otherwise applicable hereunder, or (b) the maximum rate permitted by applicable law. Such default interest shall be computed on a daily basis from the date of the Event of Default until the date the Default is cured or the indebtedness is paid in full, and shall be payable upon demand.
This content is for informational purposes only and does not constitute legal advice. Always consult a licensed attorney for legal matters.