Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.
For family and friends funding, sometimes a promissory note is used to set up a loan.
Here are some key points to consider in reading a promissory note:
- The note summary section establishes the relationship between the borrower and the lender, the date of the note, the total loan amount, and the agreed-upon interest rate.
- The terms of repayment section defines how the loan will be repaid.
- The late fee options typically include a late fee penalty. This clause documents either a fixed amount, such as $100 in addition to the current payment due, or a percentage of the payment due such as 1% per week.
- The prepayment option may help the lender as well as the startup. For example, follow-on accredited investors might prefer a loan to be paid off prior to closing their investment deal.
- Family and friend loans are intended to be more supportive, so you may choose language that allows time to “remedy” the default within X number of days or weeks.
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