A secured promissory note in California must do two jobs at once: document the loan clearly enough to be enforced as a contract, and tie that loan to specific collateral in a way that survives challenges from the borrower and from other creditors. The California requirements for a secured promissory note cover both sides — the terms written into the note itself (parties, principal, interest within the state’s usury limits, repayment schedule, acceleration, late fees) and the steps outside the note that give the lender priority over the collateral (a signed security agreement and a properly filed UCC-1 or recorded deed of trust). Missing pieces on either side can turn a fully documented loan into an unsecured one.
What the Note Must Contain
Parties and Signatures
List the full legal names and contact information of every lender, borrower, and guarantor. If either side is a business entity, use the exact name registered with the California Secretary of State. When guarantors sign, the note should say whether each guarantor is liable for the full balance or only a portion. For notes with multiple borrowers, a joint and several liability clause lets the lender pursue any single borrower for the entire amount owed rather than chasing each one for a share.
Principal, Interest, and California’s Usury Cap
The note has to state the principal amount, the interest rate, and when payments are due. California’s Constitution caps interest at 10% per year on loans made by non-exempt lenders for personal, family, or household purposes.1State of California Department of Justice. California Constitution Article 15 – Usury The cap does not apply to loans made by banks, credit unions, licensed real estate brokers arranging loans secured by real property, or several other categories of institutional lenders that the Constitution specifically exempts. Business-to-business loans from non-exempt lenders follow a different ceiling tied to the Federal Reserve discount rate.
The note should also say whether payments are due in installments or as a single lump sum at maturity, and whether the borrower can prepay without penalty. If prepayment triggers a fee, state the amount clearly.
Acceleration
An acceleration clause allows the lender to demand the entire remaining balance immediately if the borrower defaults. Without one, the lender can only collect payments as they come due, which makes recovery slow. Most acceleration clauses do not trigger automatically. The lender chooses whether to invoke the clause once a qualifying default occurs, and if the borrower cures the default before the lender accelerates, the lender loses the right to call the full balance due on that particular breach. Once acceleration is invoked, the borrower owes the unpaid principal plus interest that accrued before acceleration, not the full amount of interest that would have accumulated over the original term.
Late Fees
Late fees are enforceable in California only if they reflect a reasonable estimate of the lender’s actual damages from late payment, not a punishment. For consumer loans, the law presumes a late fee is unenforceable unless the lender can show that calculating the actual harm from a late payment would be impractical and that the fee amount was reasonable when the contract was signed.2California Legislative Information. California Civil Code 1671 – Liquidated Damages Business loans get more leeway: the fee is presumed valid unless the borrower proves it was unreasonable. On private loans, late fees typically fall between 2% and 6% of the overdue payment amount.
The Security Agreement
Under California Commercial Code Section 9203, a security interest is enforceable only when three conditions are met: the lender has given value (typically by disbursing the loan), the borrower has rights in the collateral, and the borrower has signed a security agreement describing the collateral.3California Legislative Information. California Commercial Code 9203 – Effectiveness of Security Agreement Vague descriptions invite disputes. For equipment, include serial numbers and model information. For real estate, use the legal description from the deed.
The security agreement should also address the borrower’s obligations to maintain and insure the collateral. Lenders routinely require insurance coverage naming themselves as loss payees, so insurance proceeds go toward the outstanding debt if the collateral is damaged or destroyed. A borrower who lets insurance lapse or damages the collateral through neglect is typically in breach, giving the lender grounds to act even before a missed payment.
Cross-Collateralization
A cross-collateralization clause ties collateral from one loan to obligations under other loans between the same parties. If the borrower defaults on any of the linked loans, the lender can go after all the pledged assets, even for loans where payments are current. These clauses give lenders significant leverage but also create complexity. Borrowers should negotiate carve-outs that limit which assets secure which obligations, rather than accepting blanket language covering “all obligations now or in the future.”
Priority Among Creditors
When multiple creditors claim the same collateral, the order in which their interests were perfected usually determines who gets paid first. An unperfected security interest is subordinate to a creditor who perfected earlier or to a buyer who purchased the collateral without knowledge of the lien.4California Legislative Information. California Commercial Code 9317 – Interests That Take Priority Over Unperfected Security Interests If the collateral is already subject to an existing lien, lenders sometimes require a subordination agreement from the prior lienholder. For real estate, the lender records a deed of trust with the county recorder’s office, and priority generally follows recording order.
Perfecting the Security Interest
Signing a security agreement gives the lender rights against the borrower. Perfecting the security interest is what protects the lender against everyone else. For most types of personal property, perfection requires filing a UCC-1 financing statement with the California Secretary of State.
UCC-1 Contents
The financing statement needs the debtor’s full legal name, the secured party’s name and address, and a description of the collateral. The collateral description does not need to be as granular as in the security agreement, but it must be specific enough that a searcher could identify the assets. The debtor name is where most filings go wrong. If the borrower is a registered business entity, the name must match the exact registration on file with the Secretary of State. For individuals, the name must match their California driver’s license or state ID.5California Legislative Information. California Commercial Code 9503 – Name of Debtor and Secured Party A filing under a trade name alone is not sufficient. Errors in the debtor’s name can render the entire filing ineffective, leaving the lender with an unperfected interest that loses to later creditors.
Fees and Duration
California charges $5 for electronic UCC-1 filings and $10 for paper filings of one to two pages. Paper filings of three or more pages cost $20. An additional $6 special handling fee applies if documents are submitted at the Secretary of State’s public counter.6California Secretary of State. UCC Fee Schedule
A UCC-1 financing statement remains effective for five years from the date of filing.7California Legislative Information. California Commercial Code 9515 – Duration and Effectiveness of Financing Statement When it lapses, the security interest becomes unperfected and is treated as if it had never been perfected against purchasers for value. To keep the filing alive, the lender must file a UCC-3 continuation statement within the six-month window before the five-year period expires. Filing one day late means starting over with a new UCC-1, and any priority the lender held may be lost.
Name Changes
If the borrower changes their legal name after the UCC-1 is filed, the lender has four months to file an amendment. During that four-month window, the original filing still covers collateral the borrower acquires. After four months, the filing becomes ineffective for any newly acquired collateral unless the lender has updated it.8California Legislative Information. California Commercial Code 9507 – Effect of Certain Events on Effectiveness of Financing Statement This is an easy deadline to miss, especially with business borrowers that restructure or rebrand.
Real Estate Collateral and California’s Anti-Deficiency Rules
When the collateral is real estate, the security instrument is a deed of trust, recorded with the county recorder. Enforcement then means foreclosure under Civil Code Section 2924, which can be judicial or nonjudicial.9California Legislative Information. California Civil Code 2924 – Mortgages Power of Sale The choice matters at the drafting stage because California’s anti-deficiency statutes limit what a lender can recover after foreclosure.
After a nonjudicial foreclosure (trustee’s sale), the lender cannot pursue a deficiency judgment against the borrower on the note secured by the foreclosed property.10California Legislative Information. California Code of Civil Procedure 580d – Deficiency After Power of Sale The sale is the lender’s sole remedy on that note. Guarantors may still be liable for the deficiency under the same statute.
Purchase money loans get broader protection. No deficiency judgment is allowed on a loan used to finance the purchase of a dwelling of four or fewer units if the borrower occupies the property, regardless of whether the lender forecloses judicially or nonjudicially.11California Legislative Information. California Code of Civil Procedure 580b – Purchase Money Mortgage Deficiency Refinances of purchase money loans also carry anti-deficiency protection, except to the extent the borrower took out new cash beyond the original loan balance.
The practical takeaway for a lender writing a note secured by California real estate: nonjudicial foreclosure is faster and cheaper but forfeits any right to collect a shortfall. If the collateral may be worth less than the debt, judicial foreclosure preserves the deficiency remedy at the cost of a longer and more expensive process.
Deadlines That Affect Enforceability
Statute of Limitations
A lender does not have unlimited time to sue on a defaulted note. Under California Code of Civil Procedure Section 337, the statute of limitations for an action on a written contract is four years from the date the cause of action accrues. For an installment note, the clock typically starts running on each missed payment individually, though an acceleration clause can collapse the entire balance into a single claim with a single limitations period. If the lender waits too long, the borrower can raise the statute of limitations as a complete defense, and the debt becomes unenforceable through litigation. Filing a lawsuit, recording a notice of default for a real property foreclosure, or obtaining a written acknowledgment of the debt from the borrower can interrupt or restart the clock in certain circumstances.
Federal Truth in Lending Disclosures
Private lenders making consumer loans in California face federal disclosure obligations on top of state requirements. The Truth in Lending Act and its implementing regulation, Regulation Z, require specific written disclosures about interest rates, fees, and repayment terms for most consumer credit transactions. As of January 1, 2026, loans of $73,400 or less made primarily for personal, family, or household purposes are covered, meaning the lender must provide a standardized disclosure form before the borrower becomes obligated.12Consumer Financial Protection Bureau. Truth in Lending Regulation Z Threshold Adjustments Business-purpose loans are generally exempt. Violations can expose the lender to statutory damages and rescission rights that undermine the entire note, so private lenders extending consumer credit should confirm whether TILA applies before finalizing the loan.