Promissory Note Simple Interest Calculations
Promissory notes bring with them the concept of interest. Interest (and any related terms) are you how you calculate the cost of capital for debt. (For equity, it’s a bit more complicated. Whether short-term notes, true bridge notes intended to convert into a forthcoming equity round, or even the convertible notes more common today in friends and family or seed rounds, they all carry interest with them.
Interest calculations in Excel are complicated because there are many quirks and tweaks that finance folks use in notes to get a little edge. But for the most part, the kinds of notes that startups and small businesses are using do not have these funky terms. At the same time, knowing that doesn’t make it obvious how to do the math in Excel. So, here’s a short and simple spreadsheet that you can use to track a small set of notes. Fill in the relevant information and you can project ahead to a particular closing date. It’s also very easy to adjust for a change in timing.
Again, be sure to check that the language of the notes you’re modeling, or the terms in the notes you’re drafting, match up. That bit of finance is beyond the scope of this tool, but if there are enough questions, I’ll add it to my list of classes and other tools for founders and directors.