What should the maturity date of the convertible note be?
May 2, 2007
The maturity date probably should be related to the amount of time that the money will last or the anticipated date of the event to which the funds were meant to “bridge.” The term “bridge” indicates that the loan is supposed to last until a specific event, like an equity financing or liquidity event. VCs seem to cringe at bridge loans that are a “bridge to nowhere.” As a practical matter, most companies will not have the funds to repay the loan at maturity, so the investors will generally continue to extend the maturity date instead of plunging the company into bankruptcy or taking other drastic actions.
Most bridge loans have maturity dates of less than one year. Many early stage seed bridge loans seem to have relatively long maturity dates, such as six months to a year. To satisfy the requirements of obtaining an exemption from the licensing requirements of the California Finance Lenders law, the maturity date of the bridge loan may be no longer than one year. A longer bridge loan makes the exemption unavailable, but does not necessarily subject the lender to the licensing requirements.