Venture Debt: a Loan and a Security Package
Venture debt consists of two layers: the loan contract (623, 625) and a security package under pledge law (254, 256, 274). The United States venture-debt frame with warrant coverage has no standalone Georgian form: the local instrument is a loan and a pledge, and an option over shares must be carved out as a separate instrument.
This page describes both layers and shows how the Georgian Code unites the debt and the security elements into one structure.
The Loan Layer and the Interest Ceiling
Under Article 623, the lender transfers money into the borrower’s ownership, and the borrower undertakes to return things of the same kind, quality and quantity. Venture debt is a loan regardless of whether the lender is a bank, a fund or a private investor.
Article 625 leaves interest to agreement but sets a boundary: the annual effective interest rate must not exceed 50 percent, and the requirement applies to every type of loan. An additional rule exists: a loan of up to 200 000 lari must be extended only in lari, save where the borrower’s aggregate obligations to the same lender exceed 200 000 lari.
The Concept of Pledge and the Object of Security
Article 254 defines the pledge: a movable thing of the debtor or a third person, and/or a non-material property good whose transfer to other persons is permissible, may serve as a means of securing both monetary and non-monetary claims — such that the pledgee acquires the right to satisfy the claim through realization of the pledged property or, by agreement of the parties, through taking it into ownership.
For a venture-debt package this is a wide choice: equipment and inventory, receivables and intellectual property — every movable or non-material good whose transfer is permissible may be the object of pledge. Pledge may also secure future or conditional claims, and property that the pledgor will acquire in the future may serve as security — future property becomes a means of security upon its acquisition.
A pledge securing a non-monetary claim is valid only where the claim can be expressed in monetary form — rare in venture debt, but relevant where non-monetary compensation is stipulated.