What’s a Convertible Promissory Note Offering?

What’s a Convertible Promissory Note Offering?

A Convertible Promissory Note Offering allows you to raise money in advance of having a deal under contract or within a short timeframe. With a Convertible Promissory Note Offering, you can offer note investors the following options:

Convert their principal and any interest due toward an equity investment in your deal,
Return their funds to your borrowing entity for continued use on future deals; or
Redeem their notes so they can get paid back plus interest.

You would typically offer your note investors 8%-12% interest and, as a kicker, you may want to offer them a 1%-2% loan origination fee — all of which will be due at the time you acquire a property and set up an equity syndicate that they can convert into.

At some point prior to or shortly after you acquire the property, you will create a securities offering that will allow you to raise funds from equity investors by selling interests in the title holding entity for the new property. Your note investors will be offered the first right to convert their principal (and any interest or fees then due) into an equity interest in the equity offering. The equity investor funds can be used to reimburse any note investors who don’t wish to convert and for any additional funds needed to accomplish your business goals for the property (i.e., capital improvements, reimbursement of organizational and due diligence fees, closing costs, etc.).

You can’t use note investors to acquire a property if you will also get an acquisition loan at the time of purchase, as your lender will typically not allow subordinate debt (your investor notes). The lender will want to be in first position and won’t want additional debt behind them, but they will allow equity investors (i.e., people who own a share of the acquiring company).

Creating a securities offering to sell interests in your company can take 2-4 weeks to form the companies and draft the appropriate legal documents.
A Convertible Promissory Note Offering can be completed within a couple of weeks, making it a great choice for investors who need to close quickly on such assets as mobile home parks, auction properties, or single-family properties and don’t have the time to create a specified offering or who have significant deal flow.

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Are you ready to raise private capital?

At Syndication Attorneys LLC, we are committed to your success – book a consultation with one of our team members today!

About Syndication Attorneys

We are NOT your stereotypical law firm. We don’t believe in simply taking your money, handing you a stack of technical, often-incomprehensible legal documents and then bidding you good luck and good-bye. At Syndication Attorneys PLLC, we are committed to your success – not just with the project at hand, but your continuing success in business and investing. We are your long-term legal team.

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Are you ready to raise private capital?

At Syndication Attorneys LLC, we are committed to your success – book a consultation with one of our team members today!