Bridge Financing Promissory Note
What is this form?
The Bridge Financing Promissory Note is a legal document used when investors provide a company with a short-term loan, often to help bridge funding gaps until permanent financing is secured. Unlike traditional loans, this note is structured as a term loan rather than a repayment-on-demand obligation. It can also be tailored as either a secured or unsecured note, making it flexible to the financial needs of the parties involved. Additionally, it contains provisions for the potential conversion of the loan into company stock, differentiating it from standard loan agreements.
What’s included in this form
- Loan amount and interest rate: Specifies the principal amount borrowed and the interest rate applicable.
- Maturity date: Indicates when the loan must be repaid or converted to stock.
- Conversion provisions: Details the circumstances under which the loan can be converted into company stock.
- Payment terms: Outlines how repayments are to be made and applied.
- Security agreement: Provision for collateral if the note is secured.
Common use cases
This form is typically used in scenarios where a company needs immediate funding to cover expenses before securing long-term financing. For example, businesses seeking to expand operations, invest in new projects, or address short-term cash flow issues may find this note beneficial. Additionally, startups may use this note during a funding round to attract bridge investors while they pursue larger investment offers.
Who needs this form
This form is appropriate for:
- Companies seeking short-term bridge financing from investors.
- Investors looking to provide loans to businesses with the option to convert to equity.
- Startups needing to ensure liquidity while pursuing additional funding sources.
Steps to complete this form
- Identify the parties involved: Clearly state the company (Maker) and the investor (Payee).
- Specify the loan amount: Enter the total principal amount being borrowed.
- Set the interest rate: Fill in the agreed-upon interest rate as a percentage.
- Determine the maturity date: Indicate the date by which the loan must be fully paid or converted.
- Include any security provisions: If applicable, outline the terms of the security agreement.
Notarization guidance
Notarization is generally not required for this form. However, certain states or situations might demand it. You can complete notarization online through US Legal Forms, powered by Notarize, using a verified video call available anytime.
Mistakes to watch out for
- Failing to specify the correct loan amount or interest rate.
- Neglecting to clarify whether the note is secured or unsecured.
- Not outlining the conversion provisions clearly, which can lead to confusion later.
- Omitting the maturity date or providing an unrealistic timeframe for repayment.
Benefits of completing this form online
- Convenience: Download and fill out the form from anywhere at any time.
- Editability: Easily customize the note to fit your specific needs and circumstances.
- Reliability: Ensure that the document is drafted with legal precision and includes necessary provisions.
Legal use & context
- Bridge financing promissory notes are legally binding once executed by both parties.
- These notes must comply with relevant state laws to be enforceable.
- Proper execution and adherence to terms are crucial to avoid disputes.
Summary of main points
- The Bridge Financing Promissory Note is essential for companies seeking short-term loans.
- This form provides flexibility and clarity regarding loan terms and potential equity conversions.
- Filling out the form accurately is key to ensuring its effectiveness and legal enforceability.
Form popularity
FAQ
A bridge loan is a type of short-term loan that may be used in real estate transactions when the buyer lacks the funds to finance the purchase of the new property without the prior sale of the first property.
Bridge loans typically have interest rates between 8.5% and 10.5%, making them more expensive than traditional, long-term financing options. However, the application and underwriting process for bridge loans is generally faster than for traditional loans.
Typically, the cost for bridge financing is between $1,000 and $2,000.
Melanie Bien at mortgage broker Private Finance says bridging finance has its uses, but adds that if you don't have a realistic exit strategy, such as a buyer lined up for your own property, "bridging is extremely risky and should be avoided at all costs".
A bridge loan is a temporary financing option designed to help homeowners bridge the gap between the time your existing home is sold and your new property is purchased. It enables you to use the equity in your current home to pay the down payment on your next home, while you wait for your existing home to sell.
To determine the amount of a bridge loan, take the purchase price of the new house, then subtract the value of the mortgage and the initial deposit. The leftover amount is the sum that will need to be financed until a sale is complete.
They could range from around 0.4% to 2%. Unlike a mortgage, bridge loans don't last very long. They're essentially meant to 'tide you over' for a few weeks or months. As they are short term, bridging loans usually charge monthly interest rates rather than an annual percentage rate (APR).
It is usually issued by an investment bank or venture capital firm. Equity financing (equity-for-capital swap) can also be an option for those seeking bridge financing. In all cases, bridge loans are expensive because lenders bear a significant portion of default risk loaning the funds for a short period.