Simple Convertible Loan Agreement


Interest rate – A loan agreement always converts an interest rate, because the main theme of the agreements is the “loan”. Since you lend money to a company, in most cases, convertible bonds would also be due to interest. However, unlike cash repayment, this interest applies to the invested capital, which increases the number of shares issued during the conversion. The consequences of the post-money approach, i.e. the lender`s share, remain the same, even if the company issues additional convertible bonds, may be fair if the deferred financing is the result of a less favourable than expected development of the business, but other reasons may be at stake, for example. B a successful product pivot that would allow the company to change the plans and skip the seed turn and directly increase a series A. In this case, the founders are faced with a complicated choice between an unnecessarily early seed round to trigger the convertible conversion or a larger dilution if they instead make another convertible to augment an A series shortly after. When a company lends money to investors and plans to later turn it into equity or ownership of the business, which is called convertible debt, the borrower and lender decide on the nature of the equity and a fixed date on which the loan is converted based on the commercial value at the beginning of the loan. . . .