Frequently Asked Questions

In what circumstances might one consider using a promissory note?

A promissory note can be considered in various circumstances, particularly when you need to secure financing for your company in a simple and straightforward manner. This legal contract is a viable option when you do not wish to give up equity in your business, or when you want to avoid the expense of a full securities offering. It is also beneficial when you want the debt to be in the name of your business, not on your personal credit, or when you need to clarify when founders can withdraw money loaned to the company. Promissory notes are also favored for their flexibility. For instance, a convertible promissory note allows the company to delay giving a formal valuation, which means it can increase value before equity is priced and sold. This type of note also provides options such as automatic conversion, where the lender receives equity if repayment isn't made by a certain date, or the lender or borrower having the option to take or give equity instead of cash repayment.