Promissory Note
(Uncommitted Line of Credit Facility)

Summary

This template is for a promissory note issued upon an extension of credit under an uncommitted line of credit from a lender to its borrower. This template includes practical guidance, drafting notes, and alternate and optional clauses. Under a line of credit that is uncommitted, the lender has the sole discretion as to whether to advance a loan to the borrower, regardless of whether the borrower has met all the conditions precedent to obtaining the advance. The lender has no obligation to lend and may refuse to fund any loan request under the uncommitted line of credit. Some banks and other depository financial institutions may be inclined to offer uncommitted facilities to avoid having to satisfy capital adequacy requirements imposed on such institutions in connection with committed facility assets. For detailed information on capital adequacy requirements on banks and other depository institutions, see Dodd-Frank Act Bank Capital Requirements and Basel III Risk-Based Capital Requirements. Uncommitted lines of credit are typically documented with some type of loan agreement between the lender and borrower. Such agreements expressly state that the lender has no commitment to lend and may vary as to the other terms such as demand provisions, maturity or termination, and events of default or acceleration. See Uncommitted Line of Credit Confirmation Letter for an example of this letter agreement. Depending on a lender's practices, a borrower may be required to execute a promissory note for the loans under the line of credit, which could be one promissory note evidencing the line of credit or a standalone promissory note each time the borrower requests a loan. This template provides a template of promissory note that may be used in conjunction with loans made under an uncommitted line of credit. For additional guidance, see Structuring a Financing Transaction — Types of Credit Facilities.