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
- 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. |
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, rate, distribution start date.
Current Valuation as the Hero
On the asset detail page for a promissory note, the hero metric is Current Valuation (Modeled, subtext "remaining principal"). It is the remaining principal balance derived from the amortization schedule, not the original face amount.
Sub-metrics on the same row include:
- Capital Deployed — the original principal you deployed
- Spread — the note's interest rate minus the blended cost of the capital funding it (described below)
- Received to Date — total cash received against this note
Original principal is still visible — it appears on the note detail page itself and in the amortization schedule — but the asset-level hero is the current value, 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 (used as the spread metric for most other asset types). 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.
The Spread tile shows the formula in its subtext (e.g., 8.50% − 5.00%) so the comparison is always visible. If the loan funding the note has been fully repaid, the spread tile displays ∞ with subtext "loan fully repaid."
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 — date received, total amount, the principal / interest split from the borrower's amortization, and any routing override (see below)
- Save — the payment is recorded, the remaining balance updates, and the Banking Ledger gets a corresponding cash flow received row
If a scheduled payment is overdue (past due_date), the Record Payment button is enabled even when other future payments are still scheduled — record the overdue one against the matching scheduled row.
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 on the note detail page when scheduled payments have a due date in the past and haven't been recorded yet.
- Open the note — the Backfill panel appears just below the header
- 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
You can set or edit the routing defaults from the note detail page using the Edit Routing dialog. 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.
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 Edit schedule on the note detail page. 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 schedule 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.
Turn it on from the Auto Log card on the note detail page, which also shows the next scheduled payment. 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.
What Auto Log covers:
- Note types — fully amortizing and interest-only + balloon. Accrual-balloon and pro-rata notes have no payment schedule to record from, so the card does not appear.
- Rows — only rows still marked Scheduled. A row you already recorded is never touched.
- Timing — the payment's due date, through three days after. A row more than three days past due is deliberately left alone and stays in the Backfill panel, so catching up on old history is always a decision you make rather than something that happens in bulk overnight.
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.