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Lending money to a business or a friend in Georgia? What the promissory note needs to say
Georgia sets a default interest rate when the note is silent, caps small loans, makes interest above 5 percent per month a crime and applies a specific formula to attorney's fee clauses. A clear written note avoids most of the trouble.
Responsible attorney: Lou Schwartz, Schwartz & Associates, PC, Atlanta, Georgia. intake@snalawyers.com
Key takeaways
- If the written contract does not set a rate, Georgia's legal rate on loans above $3,000 and under $250,000 is 7 percent per year simple interest [1].
- On loans of $3,000 or less, the rate may not exceed 16 percent per year unless another law applies [1].
- Charging more than 5 percent per month is a misdemeanor [2].
- A note's attorney's fee clause is enforceable only after a ten-day written notice that gives the borrower a chance to pay without fees [3].
At a glance
- Default rate
- 7% per year simple interest, principal over $3,000 and under $250,000, if no written rate [1]
- Small loans
- Up to $3,000 principal: no more than 16% per year unless another law applies [1]
- Criminal usury
- More than 5% per month [2]
- Fee clause
- Up to 15% if a percentage is stated; ten-day written notice required [3]
- Deadline
- Six years for most negotiable notes [4]
On this page
- What interest rate applies?
- Where is the line for criminal usury?
- Can the note require the borrower to pay my attorney's fees?
- What should the note say?
- What if the borrower does not pay?
- What should I avoid doing?
- How do I protect my position?
- When does it make sense to talk to a lawyer?
- How was this article prepared?
A friend needs $20,000 to keep a business open, or a founder is lending money to her own company. A handshake feels easier than paperwork. This article covers the Georgia rules that apply to a private promissory note and what to put in writing.
What interest rate applies?
It depends on the amount and on what the written note says. For principal above $3,000 and below $250,000, the parties may agree in writing on a rate expressed in simple interest terms; if no rate is set by written contract, the legal rate is 7 percent per year simple interest [1]. For principal of $3,000 or less, the rate may not exceed 16 percent per year unless the loan is made under another law [1]. For $250,000 or more, the parties have wider freedom in how the rate is expressed [1].
The statute says
“The legal rate of interest shall be 7 percent per annum simple interest”
Where is the line for criminal usury?
Above 5 percent per month. Georgia makes it a misdemeanor to charge interest greater than 5 percent per month, with an exception for licensed pawnbrokers [2].
Can the note require the borrower to pay my attorney's fees?
Yes, with conditions. If the note states a percentage, the clause is enforceable up to 15 percent of principal and interest owed; if it calls only for reasonable fees, the statute sets the amount at 15 percent of the first $500 and 10 percent of the rest [3]. In either case, after maturity the holder must give written notice that the fee clause will be enforced, and the borrower then has ten days from receipt to pay principal and interest without fees [3].
The statute says
“has ten days from the receipt of such notice to pay the principal and interest without the attorney's fees.”
What should the note say?
- Names of the lender and borrower, and any guarantor.
- Principal amount and a simple annual interest rate.
- Payment schedule, or a statement that the note is payable on demand.
- Late charges, default events and an acceleration clause.
- Prepayment terms.
- An attorney's fee clause that states a percentage.
- Any collateral, which may require a separate security agreement and filing.
What if the borrower does not pay?
Track the deadline. For a negotiable note payable at a definite time, an action generally must be brought within six years after the due date or accelerated due date; for a demand note, generally within six years after demand [4]. Send the ten-day fee notice before relying on the fee clause [3].
What should I avoid doing?
- Lending without a signed writing, which leaves the rate to the statutory default.
- Stating interest as a monthly rate or bundling charges without checking the limits.
- Waiting years to demand payment on a demand note.
How do I protect my position?
- Put every term in a signed note before funds move.
- Keep proof of each payment and each missed payment.
- Decide whether the loan should be secured, and document the collateral.
- Calendar the maturity date and the six-year limitation period.
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When does it make sense to talk to a lawyer?
When the loan is large, secured or convertible into equity, when the borrower is your own company or a business partner, when the rate or fees approach the statutory limits, or when the borrower has defaulted.
What's settled, what depends and what's unclear?
Default and maximum rates, the criminal usury threshold and the attorney's fee formula are set by statute [1] [2] [3].
Whether a loan is made under a separate lending law, and whether the note is negotiable.
Consumer loans, licensed lenders and secured transactions follow additional rules.
How a court characterizes fees or equity kickers that function like interest.
Before lending, sign a written note that states the principal, a simple annual interest rate, the payment schedule, default and acceleration terms and a fee clause that tracks Georgia law.
How was this article prepared?
It was drafted with AI assistance from the primary sources listed below, then reviewed, edited and approved by Lou Schwartz, the responsible attorney, on the review date shown. Each source was checked on the date listed beside it. The article is general information about Georgia law, not legal advice, and reading it does not create an attorney-client relationship.
Sources
- O.C.G.A. § 7-4-2 (legal and maximum rates of interest)
- O.C.G.A. § 7-4-18 (criminal usury)
- O.C.G.A. § 13-1-11 (attorney's fees on notes)
- O.C.G.A. § 11-3-118 (statute of limitations on notes)
How we write and review
- The issue and the stakes appear within the first 100 words, followed by the law the piece covers.
- Every heading is a question a reader would ask.
- Every legal statement cites a primary source checked on the update date.
- Examples are labeled hypotheticals. No testimonials, case results or outcome promises.
- An attorney at the firm reviews and approves every Analysis piece before it is published.
General information, not legal advice. Reading this article or using the intake assistant does not create an attorney-client relationship.