What is a demand note?
- Definition of Demand Note
A demand note is a notice from the lender sent to the borrower as notification that a payment is due by a certain date. Normally, a demand note comes from a loan that does not have a set repayment plan or fixed payment date.
Why is this term important?
Once a borrower receives the demand note, they typically only have a few days to make the payment to their lender. There may be some flexibility to the borrower depending on what was negotiated before the loan being provided. There does not need to be a cause or reason for the lender to be demanding the loan be paid back. As demand notes can be a liability to lenders and their organizations, it is best that the lenders are not struggling financially when taking part in this type of loan.
Another use of demand notes would be municipalities looking to fundraise by asking the public to raise money, or corporations providing a loan as an investment to another company or individual.
Examples of term
Say a corporation lent you $5,000 as an investment into your new company. After about five years of trying to get your company off the ground and running, you are still struggling to make a solid return on the investment you received. The corporation may send a demand note asking that the $5,000 loan be returned based on an agreement you had before being given the investment.