Promissory Notes in Business Financing - How They Work, the Risks and What to Check Before Signing

A promissory note often appears in the documentation associated with business financing. For the financing provider, it is a way to secure repayment. For the business owner, however, it creates an additional obligation whose scope may not be immediately clear when the documents are signed.

Particular caution is advisable when dealing with a blank promissory note, known in Polish as weksel in blanco. This is a document that does not contain all the required information when signed. That does not automatically make it an unfavourable form of security. What matters most are the rules for completing the document, the scope of the secured obligation and what happens to the promissory note once the financing has been repaid.

What should you know before signing a promissory note? We explain how promissory note security works, the differences between a blank and a complete promissory note, the risks a business owner may assume and the provisions that deserve particular attention.

What is a promissory note and why is it used in business financing?

A promissory note is a negotiable instrument drawn up in accordance with the requirements of the Polish Law on Bills of Exchange and Promissory Notes of 28 April 1936 (official Polish-language text). It creates an obligation to pay a specified sum of money. In business financing, it is most commonly used as security. If a company fails to repay its obligation as agreed, the creditor may exercise the rights arising from the promissory note.

A promissory note creates an abstract obligation, meaning that the obligation under the instrument is legally distinct from the underlying financing agreement.

This does not mean, however, that the creditor can always successfully demand any amount regardless of the financing agreement or the promissory note declaration. The rules governing completion of the document and the identity of the party seeking payment are among the factors that matter.

For the financing provider, an important advantage is the possibility of pursuing payment through a special court procedure if the statutory conditions are met. However, merely holding a promissory note does not entitle the creditor to immediately seize the business owner's bank account or assets. Enforcement requires an appropriate enforceable title.

A promissory note can secure various business obligations, including repayment of a loan, credit facility or amounts due under a commercial contract. Its use depends on the terms of the transaction and the financing provider's policies.

Own promissory notes, bills of exchange and blank promissory notes - what is the difference?

In business financing, the most commonly encountered instrument is an own promissory note, including an own promissory note issued in blank form. However, it is important to distinguish three terms describing different aspects of these instruments.

Own promissory note (weksel własny) contains an unconditional promise by its maker to pay a specified sum of money. When a business owner issues such an instrument, they assume an obligation under its terms.

Bill of exchange (weksel trasowany) contains an unconditional order directing another party, known as the drawee, to pay. Its structure is more complex, while own promissory notes are more commonly used in typical business financing arrangements.

Blank promissory note (weksel in blanco) is an incomplete instrument issued with the intention that the missing information will be added later in accordance with an agreement between the parties. It may be an own promissory note or a bill of exchange. In business financing, the instrument is usually an own promissory note issued in blank form.

This distinction matters: in blanco does not describe a separate category of obligation. It refers to the document's incomplete state when issued.

How does a blank promissory note work with a business loan?

Suppose a business receives PLN 300,000 in financing to support its growth. One of the forms of security is a blank promissory note accompanied by a promissory note declaration.

When signed, the document may not yet specify the amount or payment date because the final amount of any outstanding debt is not known.

If the business repays its obligation according to schedule, there are no grounds to use the promissory note on account of repayment arrears. However, if the business breaches the financing agreement, the financing provider may become entitled to complete the document within the limits specified in the promissory note agreement.

For example, if the remaining unpaid principal is PLN 180,000, the amount entered on the promissory note does not necessarily have to match the original financing amount.

It may also include other amounts owed, but only within the limits established by the relevant agreement and applicable law. Business owners should therefore understand which additional amounts may be included and how they are calculated.

Promissory note declaration - why is it so important?

A promissory note declaration, also referred to as a promissory note agreement, sets out the rules for completing a blank promissory note.

It is one of the most important documents from the business owner's perspective because it establishes when and for what amount the creditor may complete the instrument.

A properly drafted agreement should clearly identify the secured obligation and the circumstances allowing the creditor to use the security.

The rules for calculating the amount owed and notifying the maker that the promissory note has been completed are equally important.

What should a promissory note declaration include?

Business owners should pay particular attention to the following elements:

• Identification of the secured obligation - a reference to the specific agreement and the amounts covered by the promissory note.
• Conditions for completion - the circumstances in which the financing provider may complete the instrument.
• Scope of the promissory note amount - whether it covers principal only or also interest and other amounts.
• Rules for determining the payment date - how the date on which payment becomes due will be established.
• Notification requirements - how and when the maker will be informed that the promissory note has been completed.
• Procedure after the obligation has been discharged - how the document will be returned or effectively cancelled.

Not all these elements are statutory requirements for a promissory note declaration. However, they are important for reducing uncertainty and the risk of disputes.

Article 10 of the Polish Law on Bills of Exchange and Promissory Notes governs the consequences of completing an initially incomplete instrument contrary to the agreement.

The maker may raise an objection concerning improper completion against the original creditor, but should be prepared to demonstrate that the agreed rules were breached.

The ability to raise such an objection against a subsequent holder may be restricted, depending on the circumstances in which that person acquired the instrument.

A promissory note declaration therefore helps manage risk but does not eliminate every potential problem.

What risks are associated with signing a promissory note?

Promissory notes are used in commercial transactions, but they can significantly affect a business owner's legal and financial position.

The level of risk depends on the wording of the documents, how they are prepared and who signs them.

1. Risk of the promissory note being completed for a disputed amount

With a blank promissory note, the rules for calculating the amount owed are particularly important.

If the declaration is unclear, disagreements may arise over the outstanding debt, interest charged or additional costs.

Before signing, the business should check whether the method for calculating the promissory note amount is understandable and can be verified against the financing agreement.

2. Risk associated with transferring the promissory note

Rights arising from a promissory note may, in certain circumstances, be transferred to another party.

This is especially relevant when a business owner intends to rely on arrangements made with the original creditor.

The objections that may be raised against a subsequent holder depend, among other things, on how the instrument was transferred and the circumstances of its acquisition.

It is therefore worth checking whether the promissory note can be transferred and considering appropriate restrictions, such as a not to order clause (nie na zlecenie).

Under Article 11 of the Polish Law on Bills of Exchange and Promissory Notes, such a clause does not prevent every transfer of rights. Instead, it means the instrument can be transferred with the legal effects of an ordinary assignment of receivables.

3. Risk of personal liability

In a sole proprietorship, the business owner is generally personally liable for business obligations, subject to applicable legal protections.

A promissory note may provide an additional basis for pursuing payment.

The position is different for companies, where it is particularly important to establish who issued the promissory note and in what capacity it was signed.

Signing a promissory note on behalf of a company is not the same as personally assuming liability under the instrument.

However, the authority of the person representing the company must be verified.

Under Article 8 of the Polish Law on Bills of Exchange and Promissory Notes, a person who signs a promissory note as a representative without proper authority, or exceeds the authority granted, may become personally liable under the instrument.

4. Risk of an additional promissory note guarantee

A financing provider may require another person, such as a shareholder or management board member, to guarantee payment under the promissory note.

This type of guarantee, known as an aval, may create a separate obligation for the guarantor under the instrument.

It should not automatically be treated as equivalent to an ordinary civil-law guarantee.

Under Article 32 of the Polish Law on Bills of Exchange and Promissory Notes, an aval guarantor is liable in the same way as the person whose obligation they guarantee.

The guarantor's obligation may remain valid even where the guaranteed person's obligation is invalid for a reason other than a formal defect.

Anyone signing as an aval guarantor should therefore understand the consequences of their signature, even if they are not the direct borrower.

Can a creditor immediately refer a promissory note to a court bailiff?

No. A signed promissory note is not, by itself, an enforceable title and does not automatically entitle the creditor to commence enforcement proceedings.

However, in certain circumstances, the creditor may pursue payment based on a promissory note through an order-for-payment procedure.

Under Article 485 § 2 of the Polish Code of Civil Procedure, a properly completed promissory note whose authenticity and content raise no doubts may provide grounds for issuing an order for payment.

An important feature of this procedure is that an order for payment issued under the order-for-payment procedure constitutes a title for securing the claim from the moment it is issued, under Article 492 § 1 of the Code of Civil Procedure.

This means the creditor may be able to secure the claim before the dispute has been finally resolved, subject to the applicable procedural rules. However, securing a claim should not be confused with enforcement aimed at finally satisfying the creditor's claim.

Issuing an order for payment also does not deprive the business owner of the right to defend themselves. Appropriate objections may be raised within the statutory deadline.

A prompt response to court correspondence is essential because failing to act can have serious procedural consequences.

Business financing may also involve voluntary submission to enforcement through a notarial deed. This is a separate legal mechanism and does not work in the same way as a promissory note.

We explain the differences between these instruments, the conditions for obtaining an enforceability clause and the consequences of signing a notarial deed in our guide Art. 777 KPC - what does voluntary submission to enforcement mean?.

What should you check before signing a promissory note? A business owner's checklist

Business owners should review the promissory note together with the financing agreement and the promissory note declaration.

Only by considering these documents together can they properly assess the scope of the obligation they are assuming.

If any of these questions cannot be answered clearly, it is worth asking the financing provider to explain or clarify the documentation.

For larger financing amounts, consulting a lawyer specialising in commercial law may be particularly advisable.

Promissory notes as security - key risks and ways to manage them

The table shows that the risks associated with a promissory note depend not only on the instrument itself but also on the accompanying documents and procedures agreed between the parties.

Even a standard form of security should be reviewed in the context of the specific financing agreement.

What happens to a promissory note after the financing has been repaid?

Full repayment of the obligation should be followed by proper settlement and closure of the security documentation.

For promissory notes, it is particularly important to establish what will happen to the original instrument and how the termination of the security arrangement will be confirmed.

The clearest approach is to obtain the return of the original promissory note together with written confirmation that the secured obligation has been discharged.

If the parties agree on another procedure, it should effectively eliminate the risk of the instrument being used again.

Business owners should not rely solely on confirmation of the final bank transfer.

Keeping documentation confirming settlement of the financing agreement and termination of the promissory note security is good practice.

Does business financing always require a promissory note?

No. A promissory note is one possible form of security and is not a mandatory element of every business financing agreement in the market.

Depending on the product, financing amount and risk assessment, other instruments may be used, including mortgages, registered pledges, transfers of ownership as security, assignments of receivables and guarantees.

PaveNow, however, has a specific requirement: the minimum security for every PaveNow loan is a blank promissory note accompanied by a promissory note declaration.

For loans intended to cover ZUS social insurance contributions and tax office liabilities, this is usually the only security required. Other types of financing may require additional security, depending on the product and the assessment of the transaction.

Business owners should therefore consider not only the cost of financing but also the combined scope of all required security instruments.

A transaction may involve several instruments at the same time. In such cases, it is important to establish which obligations each instrument secures and when the individual security arrangements will be released.

For a broader comparison of mortgages, registered pledges, transfers of ownership, assignments, promissory notes, guarantees and Article 777 declarations, see our guide to business financing security and its seven main forms (Polish-language version).

The choice of security should reflect the nature of the financing, the assessed risk and the company's circumstances.

When comparing offers, it is worth asking not only about instalments and interest rates but also about the required documents, the liability of the people signing them and the procedure for releasing the security.

Summary - signing a promissory note should be an informed decision

A promissory note can be an effective form of security for business financing, but it should not be treated as a mere formality.

Blank promissory notes, promissory note declarations, the liability of signatories and the procedure for handling the instrument after repayment all require particular attention.

Before signing, business owners should check exactly what the instrument secures, when it may be completed, which amounts it covers and who is liable for payment.

This approach helps businesses assess financing terms more accurately and reduce the risk of unexpected consequences.

Making an informed financing decision starts with understanding the entire agreement, not just its cost.