Whether take out a loan from a bank or borrow money from someone you know, you should sign a promissory note.

If you borrow start-up cash for your business from a commercial lender, the lender will require you to sign a promissory note that sets out the repayment terms. If you borrow the money from a friend or relative, it's still smart to sign a promissory note, even if the lending friend or relative assures you that such formality isn't necessary. Documenting the loan can do no harm, and it can head off misunderstandings about whether the money is a loan or gift, when it is to be repaid, and how much interest is owed. It also documents the terms of the loan in case the IRS comes sniffing around with a business audit.

Types of Repayment Schedules

Banks provide their own promissory note forms. If you borrow from a friend or relative, you'll need to use a promissory note from form books or software. The legal and practical terms of promissory notes can vary considerably, but the most important thing is to pick a repayment plan that's right for you. Following are four different approaches.