Promissory notes are a common deployment in whole life banking systems. When you deploy capital from a policy loan into a lending arrangement, the borrower typically signs a promissory note agreeing to repay the principal plus interest over a defined term. Policy Stack records these notes as assets, generates their amortization schedules, and tracks the income they produce.
What Promissory Notes Are
In your banking system, a promissory note is a note receivable — you are the lender. You have deployed capital to another party, and that party has agreed to repay you according to specific terms: a principal amount, an interest rate, a term length, and a payment schedule.
The note is a legal instrument that documents the borrower's obligation. Policy Stack tracks the financial side — expected payments, actual payments received, remaining principal, maturity date, and the spread between the note rate and the cost of capital funding it.
In your banking system, you are on the lending side of promissory notes. You deployed capital and are receiving it back with interest. This is different from your policy loans, where you borrowed against your own cash value.
Adding a Promissory Note
Notes use the Add Asset wizard. You can start it from Capital → Notes with Add note, from the empty-state prompt, or from Capital → Assets; the Note Tracker entry points preselect Promissory note.
- Navigate to Capital → Notes — click Add note (or use the empty-state prompt)
- Review the type — the eight-step wizard opens with Promissory note preselected
- Step 2 — note fields — fill in borrower, repayment structure, principal, rate, term, compounding basis, and payment schedule. If the note was already paid off, record its payoff date, final payment, and principal / interest allocation here instead of enabling future tracking
- Steps 3–8 — set valuation date, link a source policy loan if the note is funded by one, skip the account-only recurring-contribution step, define cash-flow history and outlook, choose an ownership entity, and attach documents
- Save — the note appears in Note Tracker, Assets, and its parent deployment detail
What Step 2 captures
| Field | What it means |
|---|---|
| Borrower | Name of the person or entity receiving the loan. Encrypted at rest. |
| Repayment structure | One of four structures (described below). |
| Original principal | The face amount of the note — what the borrower received. |
| Interest rate (%) | Annual rate on the contract. Required for every structure except pro-rata distribution. |
| Term (months) | Length of the note. Required for every structure except pro-rata distribution. |
| Payment frequency | Monthly, quarterly, or annual. Required for structures with periodic payments. |
| First payment date | Date the first scheduled payment is due. Anchors the amortization schedule. |
| Compounding / accrual method | Fully amortizing and interest-only balloon notes support monthly or annual compounding. Accrual-balloon notes support simple, monthly, or annual accrual. |
| Distribution start date | Required for pro-rata distribution — the date the workout / restructure begins. |
| Is this note secured? | Yes / No. If yes, lien position (1st / 2nd / 3rd / other) and a short collateral description. |
| This note has already been paid off | Optional historical-note close-out. Records the payoff date, final payment, and whether that payment was principal only, interest only, or principal + interest. |
The note is saved with the name "{Borrower} ({Month YYYY})" by default so multiple notes with the same borrower stay scannable on the Assets table. You can override the name in Step 2.
The Four Repayment Structures
Policy Stack supports four structures. Pick the one that matches your signed note.
Fully amortizing
Equal periodic payments of principal + interest over the term. The balance reaches zero at maturity. This is the standard structure for most consumer and commercial notes.
Required fields: principal, rate, term months, payment frequency, first payment date.
Interest-only + balloon
Periodic payments cover interest only. The full principal is due as a lump sum at the end of the term. Common in short-term bridge and construction lending.
Required fields: principal, rate, term months, payment frequency, first payment date.
Accrual balloon
No periodic payments. Interest accrues against the balance over the term, and the full principal plus accrued interest is paid as a lump sum at maturity. Common in short-term private notes where the borrower has no cash flow during the term.
Required fields: principal, rate, term months, accrual method.
Pro-rata distribution
A workout / restructure structure. Periodic distributions reduce principal pro-rata. Used when an original note has been restructured and there's no fixed schedule — only a running balance and distributions as they come in.
Required fields: principal and distribution start date. Rate and term are not required because the payout amount and timing can vary.
In the wizard, add the expected payout amount and cadence. When each payout is due, Needs you on Home shows Review payout with that amount prefilled. Enter the amount received and choose Return of principal, Interest only, or Principal + interest. A split also asks for the interest portion; the remainder is principal. The scheduled item does not count as received and does not enter the Banking Ledger until this review is saved.
Note Tracker and Assets open the exact same Asset Workspace. Payment Tracking is the one editable payout ledger: it combines received and expected payments, Auto Log, Backfill or History Repair, recording, and corrections. Details combines note terms and capital structure, Analytics holds charts and deeper analysis, and Documents holds supporting records.
Outstanding Principal in the At a Glance Summary
On the asset detail page for a promissory note, the At a glance summary reads left to right and centres on Outstanding principal — the remaining principal balance, not the original face amount. A recorded valuation takes precedence over it; failing that, a balance derived from recorded payment splits wins over the contractual schedule.
The other nodes in the same summary are:
- Capital lent — the original principal you deployed
- Payments received — recorded principal and interest against this note
- Expected payment / month — the scheduled monthly-equivalent payment, labeled Projected
Original principal stays visible in the Asset Workspace and payment schedule, but the summary leads with the outstanding balance, because that's what answers "how much of this is still outstanding?"
Spread: Note Rate Minus Blended Cost
The Spread metric on a note asset is calculated as:
spread = note_interest_rate − blended_cost_of_capital
The blended cost of capital is the weighted average rate of all loans funding the deployment that owns this note. For a note funded by a single 5% policy loan, the blended cost is 5%. For a note funded by a mix of a 4% policy loan and a 7% external loan, the blended cost is weighted by how much principal each contributed.
This is different from cash-on-cash return. For a contractual note with a fixed schedule, the rate-minus-cost comparison is the meaningful spread — it tells you the margin you're earning, independent of how many payments have come in so far. Where the funding loan has been fully repaid there is no cost left to subtract, so no finite spread applies.
Note terms stay visible in the Asset Workspace under Details, which combines the terms and the capital structure behind them.
Recording Payments
As the borrower makes payments, you record each one. Payments are entered manually — Policy Stack does not connect to bank accounts.
- Open the note — Capital → Notes, then click the note (or open it from its parent deployment / asset page)
- Click Record Payment — opens the payment entry dialog
- Enter payment details — choose the scheduled row, enter the received date and amount, and classify the actual receipt as principal only, interest only, or principal + interest. For a split receipt, enter the exact interest portion; the remainder is principal. You can also override routing for that payment (see below)
- Save — the payment is recorded, the remaining balance updates, and the Banking Ledger gets a corresponding cash flow received row
If Auto Log is on, Policy Stack records the due scheduled row as an Auto entry and surfaces that exact recorded row for confirmation. Confirming does not create or advance a different future payment. If the recorded amount or split differs from what arrived, correct the row from Payment Tracking. If a scheduled payment is overdue, record it against the matching scheduled row or use the Backfill panel for multiple periods.
When the note closes, use Record Payoff. The same close-out works for every repayment structure: enter the payoff date and final payment, classify it as principal only, interest only, or principal + interest, and enter the interest portion when it is split. Policy Stack records the final payment, closes the remaining capital basis, records a $0 final valuation, marks the note Exited, turns off Auto Log, cancels open installments, and removes its future payment obligation. The assistant can explain this flow but cannot record a payoff.
Example records are read-only. When the example-data banner is visible, Record Payment and the other asset-header quick actions are disabled, and no payment or auto-log schedule is saved from those controls.
Backfill: Logging Historical Payments
If you add a note that has been active for a while, the wizard creates the full schedule but the early periods are already past. Policy Stack surfaces a Backfill panel in Asset Workspace → Payment Tracking when scheduled or overdue payments have a due date in the past and haven't been recorded yet.
- Open the note — Note Tracker and Assets both open the same workspace on Payment Tracking
- Review the past-due rows — Policy Stack lists every scheduled payment whose due date has passed, with the expected amount and split
- Confirm or edit — accept the schedule's defaults, or override amounts for periods where actual payments differed from the contract
- Backfill — Policy Stack writes the confirmed payments to the note, the banking ledger, and the deployment's cash flow history in one operation
Backfilled rows are tagged so they're distinguishable from in-the-moment recordings — useful for audit trails and for verifying that aggregate metrics include the historical income.
Proceeds Routing
When a payment is recorded, Policy Stack can route the interest portion and the principal portion to different destinations. Each note carries two routing configurations — one for the interest side, one for the principal side — and each has three possible destinations:
- Loan — applied as a loan repayment to a specified policy loan. Reduces that loan's balance.
- PUA — recorded as a paid-up additions deposit on a policy.
- Cash — captured as cash received against the deployment, no further routing.
The percentages on each side must sum to 100. New notes default to 0 / 0 / 100 (all cash) on both sides, so routing is opt-in.
Setting routing defaults
Open the Asset Workspace action menu, choose Edit note, then select Routing. Each side (interest / principal) gets its own three-way split. If any percentage > 0 is set for the Loan destination, the dialog requires picking which loan it routes to. Basics, Terms, and Routing share one Save Changes action.
Per-payment override
When recording a payment, you can override the note's default routing for that single payment without changing the saved defaults. Useful when a one-off payment needs to go somewhere different than the standing arrangement.
A separate article walks through routing in more depth — see "Routing note proceeds" (in this Core Features section).
The Amortization Schedule
Policy Stack generates an amortization schedule for each note based on the structure and terms you entered. The schedule breaks every expected payment into:
- Principal return — the portion of each payment that reduces the outstanding balance
- Interest income — the portion that is income to you
For a fully amortizing note, early payments are typically weighted toward interest, with the principal portion increasing over time. For an accrual balloon, there are no periodic rows — only a single maturity row with the full principal + accrued interest.
Edit scheduled amounts or dates
On a fully amortizing or interest-only balloon note, open Asset Workspace → Payment Tracking → Edit expected payments. Only rows still marked Scheduled can be changed; recorded rows remain locked. Amount and due-date edits stay local until you select Save schedule. Policy Stack then recalculates the edited row and every later row interest-first to exact cents, clears the final balance to $0.00, and cancels an unused tail after an early payoff. Lowering a prior override restores later rows when a balance remains.
Edited amounts carry an Override label and are reused by the Backfill panel. Changing rate, term, frequency, first payment date, or compounding basis rebuilds the schedule; Policy Stack warns first when amount overrides exist because regeneration intentionally clears them.
Correct a recorded payment
Paid and Partial rows have a ⋯ menu when Edit expected payments is off. Choose Edit payment to replace the recorded amount, received date, allocation, or notes. Policy Stack removes the prior linked cash flow, Banking Ledger entry, and routed loan-repayment or PUA activity, then records the corrected payment in their place.
Choose Delete payment when the payment should not have been recorded. The same linked activity is removed and the schedule row returns to Scheduled, ready to record again. A note-payment cash flow cannot be deleted directly from the deployment cash-flow table; correct it from the note schedule so the payment status and every linked record stay together.
The amortization schedule, remaining principal, and modeled current valuation are all Modeled · Illustrative · Not recorded values. They derive from the terms you entered, not from observed payments. Recorded amounts appear in the schedule's Received column; on this recorded-only value, Actual provenance is implicit.
Auto Log
Auto Log records a note's scheduled payments for you instead of you logging each one by hand. It is off for every note unless you turn it on — existing notes were not switched on, and a new note stays off unless you enable the toggle in the Add Note wizard.
Example notes are a read-only preview. Their payment recording, Auto Log, schedule changes, recorded-payment corrections, routing changes, note edits, and deletion controls are disabled; add a real note to record activity.
Turn it on from Asset Workspace → Payment Tracking. The Auto Log card and full payment schedule live together. Toggling it never touches the schedule or your amount overrides.
The schedule is the only source of the amount. Whatever a row shows is what gets recorded — edit a row to $600 and Auto Log records $600. There is no second amount to keep in sync.
The same schedule appears as a spreadsheet-style ledger in Payment Tracking and as an Amortization & payment mix graph in Analytics. Both use the same principal and interest allocations; Payment Tracking labels each row Principal only, Interest only, or Principal + interest.
What Auto Log covers:
- Scheduled note types — fully amortizing and interest-only + balloon. Auto Log records only rows still marked Scheduled; a row already recorded is never touched. It runs from the due date through three days after. Older unpaid rows stay in Backfill, so catching up on history remains a deliberate review.
- Pro-rata notes — Auto Log creates a due Review payout task from the configured payout cadence. It does not count the expected amount as received or write a Banking Ledger row until the user enters the actual amount and principal/interest classification.
- Accrual-balloon notes — no periodic payment schedule exists, so there is no recurring Auto Log action before payoff.
Pro-rata notes use that review loop rather than an automatic receipt. The expected amount is prefilled, but the user must supply the principal/interest allocation before it becomes recorded.
One case Auto Log has no part in: adding a note whose first payment date is already in the past. The wizard shows a checkbox naming exactly how many payments are already due and over what dates — Mark 7 payments already due as paid. It ships checked, because a note entered with a back-dated first payment is usually one that has been performing. Leave it checked and Policy Stack records those payments when you finish the wizard, each at its expected amount on its own due date, with the note's routing applied; rows scheduled for $0 are skipped. Uncheck it and they stay Scheduled and show as past due, for you to review one at a time in the Backfill panel. Either way it is a one-time decision at creation, on scheduled note types only, and it is independent of Auto Log. If one of the recorded periods was actually missed, open the schedule and use the row's Edit payment or Delete payment action.
If This note has already been paid off is selected, Auto Log is disabled. For scheduled notes, the wizard can still record earlier due receipts before it records the final payoff; the closed note keeps that history without leaving future obligations active.
A recorded payment is identical whether Auto Log or you recorded it: the same interest/principal split, the same cash-flow and Banking Ledger entries, and the same proceeds routing to policy loans, paid-up additions, and system cash.
Turning Auto Log off stops future automatic recording. It does not remove payments already recorded.
Tracking Maturity
Each note's maturity date is calculated from the first-payment date and term length. The asset detail page shows the maturity date alongside the note's current status:
- Active — the note is within its term and payments are being tracked
- Matured — the note has reached its maturity date
- Repaid — all principal has been returned
The maturity date is the planning anchor for when deployed capital will be fully back in your hands — useful when sequencing loan repayments or planning your next deployment.
Multiple Notes on One Deployment
Some deployments involve multiple lending arrangements — for example, a private lending fund that issues separate notes for different tranches. Policy Stack supports multiple notes per deployment. Each note has its own terms, amortization schedule, payment history, and routing configuration. The deployment detail view lists every linked note with its principal, rate, term, and current balance.
How Notes Flow Through Your Banking System
Promissory note activity touches several surfaces:
- Banking Ledger — every recorded payment writes a cash flow received row, tagged with the note as the source
- Income Stacker — interest income from notes appears alongside other deployment cash flow in the unified income view
- Capital Velocity — principal returns from notes contribute to the cycle of capital through your system
- Net Worth — the note's current valuation (modeled remaining principal) contributes to your net worth alongside other deployed assets
- Spread analytics — note-level spread (rate − blended cost) flows into the deployment-level and system-level spread aggregates
Policy Stack tracks the financial data you enter. It does not verify whether payments have actually been received, enforce collection, or provide legal guidance on promissory notes. Consult appropriate professionals for legal and tax matters related to private lending.