Bridge Financing: the Georgian Legal Form
Bridge financing is a short-term loan between rounds: the company raises funds until the next investment closes. In Georgian law the four load-bearing norms of this instrument sit in the Civil Code: the concept of the loan contract, the agreed interest, the right to demand immediate repayment and the conditional transaction. United States-style bridge instruments that await conversion into shares must be restated as loans under Georgian law — this page sets out the rules of that restatement.
Note the ceiling as well: the annual effective interest rate agreed for a loan must not exceed 50 percent — this requirement applies to every type of loan, bridge loans included.
The Loan Contract: the Core of the Bridge
Under Article 623 of the Civil Code, under a loan contract the lender transfers into the borrower’s ownership money or other generic things, and the borrower undertakes to return things of the same kind, quality and quantity. Bridge financing is written in exactly this construction: the lender may be a fund or a private investor — the Code does not restrict the lender’s status.
Article 625 leaves interest to agreement: the parties may provide interest for the loan. The same article adds a currency rule: a loan of up to 200 000 lari must be extended only in lari, save where, as a result of the extension, the borrower’s aggregate obligations to the same lender exceed 200 000 lari. A loan linked to or indexed in foreign currency is not considered extended in lari.
Immediate Demand: Insuring the Bridge
Article 627 gives the lender an acceleration lever: the lender has the right to demand immediate return of the loan where the borrower’s financial condition materially deteriorates, thereby endangering the claim to repayment. The right exists even where the deterioration preceded the contract and the lender learned of it only after conclusion.
For a startup this means that monitoring the borrower’s financial condition is in both parties’ interest: the lender protects the prospect of repayment, and the borrower protection against a sudden acceleration that would sink the whole planned round.
The Conditional Transaction: Tying It to Closing
Article 90 governs the most common bridge construction: a transaction is conditional where it depends on a future and uncertain event, in that either performance is postponed until the event occurs, or the transaction terminates upon its occurrence. In bridge financing such an event may be the closing of the next round, a consent, or another defined fact.
Correct formulation of the condition is decisive: the event must be future and uncertain at the moment of conclusion. If the condition is not so described, its operation becomes contestable and the whole architecture of the deal stands at risk.
In practice a single frame unites these four norms in the bridge document: the sum and term come from the loan concept, the interest from the agreed terms, acceleration from the condition clause on the borrower’s standing, and the payment tied to closing from the conditionality mechanism. Harmonizing these elements with one another is precisely the work that a copy of a template will not do.
How all four norms fit into a single document is decided by three choices: what amount and for what term is issued — the task of the loan concept (Article 623); what interest and in what currency — the frame of Article 625, with the 50 percent ceiling and the 200 000 lari currency rule; and to what event the closing is tied — the condition of Article 90. Each choice is written as a separate clause, and it is precisely that punctuality that later saves the bridge from disputed situations.
The acceleration norm (Article 627) performs the function of insurance in this architecture and balances the parties' interests in both directions: for the lender it is a guarantee of return upon material deterioration of the borrower's financial condition, and for the borrower a source of advance knowledge — which fact counts as material deterioration and which event activates the immediate demand. These definitions must be written into the contract itself: the law gives the frame, the details remain to the parties' agreement.
Frequently Asked Questions
Below are the most frequent questions about bridge financing.
Under which contract is a bridge extended?
A loan contract — the lender transfers money into ownership and the borrower returns things of the same kind and quantity.
How high may the interest be?
The annual effective interest rate must not exceed 50 percent — the cap applies to every type of loan.
When is immediate demand possible?
Where the borrower’s financial condition materially deteriorates, endangering repayment.
Can repayment be tied to the round?
Yes — through the conditional-transaction mechanism: performance is postponed until the event or terminates upon it.
Must the bridge be in lari?
A loan of up to 200 000 lari is extended only in lari; an exception applies where aggregate obligations exceed that threshold.
How We Help on Legal.ge
The lawyers of Legal.ge help you prepare the bridge-financing contract: we shape the loan, interest and conditionality terms within the Code’s limits and protect the balance of lender and borrower interests. Contact us — a correctly written bridge is drafted before the round, not after it.