What an Ontario promissory note is for
When you lend money to a family member, a friend, a business partner or your own company, a promissory note turns a handshake into a clear, enforceable promise. It records how much was lent, whether interest is charged, when and how it will be repaid, and what happens if payments stop. It also helps later: with the Canada Revenue Agency if the loan's nature is questioned, with an estate if the lender or borrower dies, and in court if the debt has to be collected.
This note is written for Ontario and the federal laws that govern notes and interest. It states the promise to pay in the form the Bills of Exchange Act describes, sets interest as a yearly rate with compounding as the Interest Act requires, and offers two repayment options: instalments with a schedule, or payment on demand within a set number of days. It allows prepayment without penalty, defines default and acceleration, and includes optional security with registration under the Personal Property Security Act and an optional guarantee. A payment schedule with a worked example, a payment record, a demand for payment and a release on payment in full complete it.
When to use it
Use it for personal and small business loans in Ontario: loans to children or relatives for a car, tuition or a down payment, loans between friends, shareholder loans to a corporation, and loans from a business to a customer or employee. It works for interest-free and interest-bearing loans.
For larger or complex lending, such as loans secured on real estate (which need a registered mortgage), commercial loans with financial covenants, or consumer lending by a business, use a full loan agreement prepared with legal advice. Consumer lenders in Ontario also have disclosure obligations under consumer protection law.
What's inside
The full list of sections and fields in this template, in the order they appear.
-
Note details and promise to pay
- Principal
- Date and place
- Borrower
- Lender
- Unconditional promise
-
Interest and repayment
- Annual rate and compounding
- Interest-free option
- Instalments or on demand
- Payment method
- Application of payments
- Prepayment without penalty
-
Default and protection
- Events of default
- Acceleration
- Collection costs
- Optional security and PPSA registration
- Optional guarantee
-
General terms and signatures
- Waiver of presentment
- No waiver by delay
- Transfer
- Ontario law
- Independent advice
- Borrower
- witness and guarantor signatures
-
Schedules and forms
- Payment schedule with worked example
- Payment record
- Demand for payment
- Release on payment in full
Preview pages
-
Page 1 -
Page 2 -
Page 3
How to complete the note
- Enter the amount, date and place. Use Canadian dollars and the place where the note is signed.
- Name the borrower and lender. Use full legal names and addresses.
- Set the interest. State a yearly rate and how often it compounds, or choose no interest.
- Choose instalments or demand. Keep Option A with a schedule, or Option B with a notice period.
- Set the default terms. Choose the grace period for late payments.
- Decide on security and a guarantor. Describe any collateral, or delete the sections.
- Sign it. The borrower signs, with an optional witness and guarantor.
- Give the borrower a copy. The lender keeps the original.
- Record every payment. Use the payment record, and sign the release when the loan is repaid.
Example: a completed note excerpt
A fictional Ottawa parent lends their adult child money toward a car:
Principal: $10,000. Date: March 1, 2026, Ottawa, Ontario. Interest: 6 per cent per year, calculated and compounded monthly, not in advance. Repayment: Option A, 24 monthly instalments of $443.21, due on the 1st of each month from April 1, 2026, with the final payment due March 1, 2028. Security: the 2022 Toyota RAV4 being purchased, with a financing statement registered under the Personal Property Security Act.
The first payment covers $50.00 of interest and $393.21 of principal, leaving a balance of $9,606.79. The parent records each e-transfer in the payment record and signs the release after the last payment.
Ontario and federal rules to know
These are the rules this note is built around.
- Bills of Exchange Act, section 176. A promissory note is an unconditional written promise, signed by the maker, to pay a sum certain on demand or at a fixed or determinable time.
- Interest Act, section 4. Interest stated only for a period of less than a year is limited to 5 per cent a year unless the equivalent yearly rate is stated.
- Criminal Code, section 347. Interest at an annual percentage rate above 35 per cent is a criminal rate.
- Limitations Act, 2002, sections 4, 5(3) and 15. Two years from discovery; for demand obligations, from the first failure to pay after a demand; and an ultimate limit of 15 years.
- Personal Property Security Act. Registration of a financing statement protects the lender's security interest in personal property.
Mistakes that make notes hard to enforce
The common problems are stating interest as a monthly rate only, leaving the amount or repayment terms vague, making the promise conditional ("when I can afford it"), not signing or dating the note, never recording payments, waiting too long after a missed payment or demand, and taking security without registering it. Completing every section and keeping the payment record avoids each of them.
Frequently asked questions
Is a promissory note legally binding in Ontario?
Yes. Under the federal Bills of Exchange Act, a promissory note is an unconditional written promise, signed by the maker, to pay a fixed sum of money on demand or at a fixed or determinable future time. A properly signed note can be enforced in court like any other debt, and it is clear evidence of the loan's terms.
How should interest be stated in an Ontario promissory note?
As a yearly rate. Section 4 of the federal Interest Act says that if a written contract states interest only for a period shorter than a year, such as per month, the lender can recover no more than 5 per cent a year unless the contract also states the equivalent yearly rate. Interest above 35 per cent a year is a criminal rate under the Criminal Code.
Does a promissory note need a witness in Ontario?
No. A promissory note must be signed by the borrower, but a witness is not legally required. A witness can still help prove the signature if it is ever disputed, so this template includes an optional witness line.
How long does a lender have to sue on a promissory note in Ontario?
Generally two years from when the claim is discovered under the Limitations Act, 2002. For a note payable on demand, the clock starts only once a demand is made and the borrower fails to pay, but no claim can be brought more than 15 years after the default.
What is the difference between a demand note and an instalment note?
An instalment note sets a repayment schedule and maturity date. A demand note lets the lender ask for repayment at any time, with a set number of days to pay. Demand notes suit informal family loans; instalment notes suit loans that should be repaid on a predictable schedule.
