Introduction

This checklist highlights key issues that farmers should consider when taking out a personal loan from a friend, family member, or even a stranger to buy land, finance farm equipment, or support general operational needs for the farm operation. Going through this checklist and answering the tough questions will be of great benefit to all parties involved. The brainstorming and negotiation process can help clarify how various scenarios will be handled, set shared expectations, and prevent confusion and disputes down the road.

The next step is to put it all in writing in an official agreement–the promissory note. A promissory note can be a simple and straightforward legal contract, and farmers can certainly try drafting it themselves. The other option is to bring your responses and thoughts to the issues and questions in this checklist to a qualified attorney who can draft the promissory note for you. By doing the legwork, you will make the process much more efficient for the attorney and less expensive for you.

This checklist is designed to be used with our other resources provided in this guide, including the Overview of Promissory Notes section and following Sample Promissory Note with Annotations that works in conjunction with the story of the loan between Susie on behalf of Mother Earth Farms LLC and her brother Danny. Also be sure to check out the special legal sections to prevent issues with gift taxes and securities laws issues–What’s the difference between a gift and a loan and why does it matter? and Is Your Promissory Note a Security and Why Does It Matter?