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.