Promissory Notes

Convertible Promissory Note Definition

What is a convertible promissory note?

It is a kind of a promissory note that can be converted by the note-holder into financial assets (financial conversion) or something physical such as gold or cash (physical conversion) at any time. Like other promissory notes, it can bear interests and be payable on its due date. But typically conversion is the usual purpose between two parties rather than repayment.

Currencies are considered to be financially convertible promissory notes as you can purchase bonds, stocks, other financial assets from a company or the government. It is this financial convertibility that the entire banking system in the world is based on.

Some companies issue convertible promissory notes as a means to grow. The notes can be exchanged for stocks, cash or any other items as stated. When a company issues convertible promissory notes to raise funds, the investors usually keep the notes until the maturity date.