Is the interest on the Boulder Designs Promissory Note simple or compounded?
Boulder_Designs Franchise · 2025 FDDAnswer from 2025 FDD Document
FOR VALUE RECEIVED, , whose address is (“Debtor”, whether one or more) jointly and severally promises to pay to the order of Boulder Designs Franchising, LLC, a Texas limited liability company, or its affiliates, successors, | | and assigns ("Franchisor" or "PAYEE") at its offices at 2324 N. Robinson Drive, Waco, Texas | | 76706, or such other location as PAYEE may hereafter | designate, the principal sum of | and/100 Dollars ($), together with interest on the unpaid | principal balance outstanding from time to time hereon at a rate equal to 8.5% per annum | or the Maximum Rate, whichever is less, under the terms and conditions of this promissory note and security agreement | ("Note"). This Note is due and payable in 42 | monthly installments of principal and interest. The first of | 42 | | payments shall be in an amount of $ commencing, 20, and on the | | first day of each and every calendar month thereafter, and the 42nd | and final installment shall be due on , 20, on which date the entire unpaid principal balance and all accrued and unpaid | interest is due and payable in full. Each payment will first be applied to accrued and unpaid interest and | then to principal. Any payment not received by PAYEE within ten (10) days of its due date is subject to a | late fee of Fifty Dollars ($50).
Source: Item 22 — CONTRACTS (FDD page 50)
What This Means (2025 FDD)
According to Boulder Designs' 2025 Franchise Disclosure Document, the interest on the promissory note is simple interest. The note specifies that interest accrues on the unpaid principal balance at a rate of 8.5% per annum, or the maximum rate allowed by law, whichever is less. Each payment is first applied to cover any accrued and unpaid interest before reducing the principal balance. This method of applying payments ensures that the franchisee is paying off the interest before reducing the loan's principal.
The promissory note outlines a repayment schedule of 42 monthly installments, detailing how the payments will be allocated between interest and principal. This structure is typical for franchise loans, providing a clear timeline for repayment. The note also includes provisions for late fees, setting a $50 charge for payments received more than ten days after the due date. This encourages timely payments and helps Boulder Designs manage its financial risks.
Furthermore, the agreement addresses scenarios where the interest charged might exceed the maximum legal rate. In such cases, Boulder Designs has the option to either refund the excess amount to the debtor or credit it against the principal balance. This clause protects both the franchisee and Boulder Designs from potential legal issues related to usury laws, ensuring compliance and fair financial practices. The promissory note is secured by a personal guarantee from the Debtor's principal.