To fund your Small businesses

How to use aPromissory note

What a promissory note is(and what it’s not)

Is a promise by the promissor (the borrower) to pay a specified sum, within a defined period of time, to the promisee (the lender). A promissory note may or may not contain a schedule for repayment.

A Promissory Note

1. Personal 2. Business

There are two primary ways you can borrow money when using a promissory note

Which method you use has very important legal consequences.

1. PersonalYou can be a party to the transaction personally, and borrow the money in your personal name. (checks are written out to you personally).

2. BusinessYour business can be a party to the transaction. (checks written out to your business).

In your personal nameBorrowing Money

Before they legally establish a business. Those that have already established a business may also be able to take a personal loan, and invest the funds in the business.

Many people start borrowing money

In your business nameBorrowing Money

You can use a promissory note to borrow money in the name of the business. If a business borrows money and is unable to pay it back, the business owner may not be on the hook for paying it back.

Instead of borrowing money in your personal name

1. Businesses may have multiple owners, making it easier to borrow and pay. 2. The business may be better or easier to evaluate as a borrower by potential lenders than the business owner(s). 3. The business may be able to advertise that its looking to raise money. (More on this here.)

Reasons why a business owner might want to borrow in the name of the business

Small business sec eXemptionsWhen Raising Funds

They are going to need to choose and comply with an exemption from securities registration requirements. The most common exemption is Rule 506 of Regulation D.

Unless a business is going to do a registered securities offering with SEC

Restrictions on the fundraising process can include how much money can be raised, over what period, who can invest, what information must be provided, and if marketing can occur.

Exemptions place restrictions on the fundraising process

Putting a banner ad online, mentioning raising money on Facebook, or talking about raising money to a reporter would constitute a general solicitation.

What is a General Solicitation?

The Bottom LineBefore borrowing money via a promissory note, make sure you consider the consequences of borrowing that money. If borrowing money in your personal name, we recommend Trustleaf.com. !If borrowing money in the name of your business, we recommend using an attorney or InvestNextDoor.

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