The promissory note – everything you need to know about it

In recent years, the financing instrument of the promissory note loan has regained relevance.

Promissory note loans are attracting more and more investors in times of low interest rates and volatile capital markets and have established themselves as an alternative to traditional bank loans.

What is a promissory note?

The promissory bill combines the features of a bond, a traditional loan and a syndicated loan. According to german law (BGB), it is listed as a bilateral private placement and thus does not fall under securities prospectus law. As a result, there are no extensive documentation requirements to fulfill. So the promissory bill is very flexible, but provides a high degree of standardization.

If one compares the borrower's bill loan with a bond, one finds that the borrower's bill offers a significantly more favorable and faster issuing process. While bonds require the preparation of a securities prospectus and extensive documentation (up to 600 pages), the entire documentation of a promissory bill can be captured in a few pages

In addition, it enables volumes that are not possible with traditional loans. This is primarily because the promissory bill is an unsecured, bilateral loan with little collateral arrangements.

The following players generally operate in the promissory note process. The investor, the issuer and the arranger. Investors are primarily banks or insurance companies. Issuers are usually companies with high annual sales of 150 million to 5 billion euros. In the meantime, more and more medium-sized companies are becoming active in the field of borrower's note loans; here, the lot sizes are already in the small double-digit millions range. Banks or financial brokers often act as arrangers. You lead negotiations and provide advisory services.

A promissory bill, compared to a bank loan, is much less restrictive in terms of loan collateral arrangements, as the capital is considered an investment rather than a loan. Another reason for the increasing popularity of the promissory bill is its accounting recording rules. As a certificate-based instrument, the promissory bill can be recorded at its nominal value with accrual values and does not have to be recorded at market value. Therefore, the promissory bill is straightforward to process and is more resilient to market fluctuations.

The recording of a promissory note

A promissory bill can be raised in two different ways.

Option #1 – the broad placement of the schuldschein

The issuer agrees with the arranger on the size of the promissory note, denomination, pricing terms and marketing period. The arranger then contacts potential investors. If these investors are interested in a share, their intention to buy is recorded in an order book. After the end of the marketing period, the price is determined and the volumes are allocated to the investors.

Option #2 – the private placement

This method does not address a large investor base, but only contacts selected investors. There is no fixed marketing time and no order book. This process is typically used for unusual maturities, smaller volumes or special repayment structures. Taking out a private promissory bill is also possible without an arranger.

The typical promissory bill issuance process

The promissory bill and digitalization

An additional reason for the increasing popularity is the potential for the digitization of promissory notes. Above all, the structuring and placement of promissory note loans can be mapped digitally.

Due to this, more and more digital platform companies are appearing on the market offering digital services around the accompanying processes of the promissory note issue. The traditional process contains many inefficient steps, which digitalization aims to make void. Among other things, blockchain technology is also used for this purpose.

There are now numerous platform solutions for the digital processing of borrower's note loans, such as VC-trade or BBVA. The boom also attracts larger issuers, such as lufthansa, resulting in significantly higher transaction volumes. However, small issuers also benefit from the platforms, as smaller transaction volumes can also be handled efficiently.

However, the digitization of the schuldschein is not yet fully completed. Most platforms can already handle the entire cycle, d.H. Structuring, marketing, bookbuilding, settlement and post-settlement. Since the promissory bill is based on deeds, the most important step of certificate signing still has to be done in analog and in coordination with a notary public.

Promissory note loans: risks and opportunities

The advantages and disadvantages of promissory note loans.


One of the biggest advantages of a borrower's note loan is that borrowers can take out a large loan amount. In addition, in contrast to syndicated loans, they offer favorable conditions in terms of maturity and interest rate.

Due to the lower complexity, the fees for administration and brokerage are lower than for bonds.

No minimum volume is specified; a borrower's note loan can be taken out for a relatively small sum (in some cases from 10 million euros).

In addition, the borrower does not have to be a listed company to take out the borrower's note loan. Lenders do not have to be banks, increasingly non-bank lenders are acting as investors.

An advantage for the lenders is that the interest rate is often above the capital market yield, which makes the borrower's note loan therefore also very interesting for investors.


The borrower's note loan is not a security and therefore its tradability is restricted. Therefore, a very good credit rating is an important success factor for promissory note loans.

As a rule, early cancellation of the loan is not possible in the case of a promissory note loan.

Facts & figures on the borrower's note loan in summary.

– the borrower's note loan is a loan contract according to §§ 488 ff. BGB. And not a security.

– A borrower's note loan has special termination rights which cannot be excluded by contract.

– the loan agreement is not subject to any formal requirements.

– issuing promissory note loans is simple, fast and inexpensive.

– the minimum for promissory bills is about 15-20 million. Euros, while a bond is usually only worthwhile from a significantly higher volume.

– the bureaucratic effort is much lower than for bonds.

– the term is usually 2-15 years (>15 years possible)

Conclusion on the promissory note loan

The borrower's note loan has developed from a niche product to a good alternative on the financing market. Issuers greatly appreciate the favorable and fast issuing process and also benefit from advanced standardization. For investors, the promissory bill is a good alternative to the capital market.