Legal Definitions - demand note

A demand note is a type of written promise to repay a loan that becomes due and payable whenever the person or entity who holds the note (the lender) asks for the money back. Unlike traditional loans with fixed maturity dates or regular payment schedules, a demand note offers the lender the flexibility to request full repayment at any time, often with a specified notice period.

Here are some examples to illustrate how a demand note works:

• Example 1: Business Expansion Loan

  Imagine a small business owner, Sarah, needs quick capital to purchase new equipment for an unexpected large order. Her long-time business associate, David, agrees to lend her $50,000. Instead of setting up a rigid repayment plan, they sign a demand note. This agreement states that Sarah owes David $50,000 plus a small interest rate, but David can request the full amount back at any point, provided he gives Sarah 30 days' notice. This arrangement gives David peace of mind that he can access his funds if an urgent personal need arises, while Sarah gets the immediate capital she needs without a fixed monthly burden.

  This illustrates a demand note because David, as the holder, can demand repayment of the loan at his discretion, rather than waiting for a specific due date or adhering to a pre-set schedule.

• Example 2: Family Financial Assistance

  Consider Maria, who needs to cover unexpected medical expenses but doesn't want to take out a high-interest personal loan. Her brother, Carlos, offers to lend her $10,000. They agree on a demand note, specifying no interest, but acknowledging that Carlos might need the money back in the future for his own retirement plans. They include a clause that Carlos will give Maria 60 days' notice before demanding repayment. This allows Maria to focus on her recovery without immediate financial pressure, while Carlos retains the option to retrieve his funds when he eventually needs them.

  This demonstrates a demand note because Carlos, the lender, has the legal right to request the return of the $10,000 at any time, subject to the agreed-upon notice period, rather than being locked into a fixed repayment timeline.

• Example 3: Short-Term Bridge Financing

  A real estate developer, Mark, needs to quickly acquire a prime piece of land before another buyer steps in. He plans to secure a larger, long-term construction loan later, but needs immediate funds. A private lender provides Mark with a $1 million loan structured as a demand note. The agreement specifies that the lender can call for repayment of the entire sum at any time, especially if Mark fails to secure his long-term financing within a certain period or if the property market takes an unexpected downturn. This allows the lender to mitigate risk by having the flexibility to retrieve their investment if conditions become unfavorable.

  This exemplifies a demand note because the private lender, as the holder, can demand the return of the $1 million loan at any point, providing them with crucial flexibility and risk management in a volatile market, rather than being bound by a fixed term.