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Convertible Loan Agreement

Key points and template

Approovd helps you to create a legally compliant convertible loan agreement easily and in just a few minutes. For only CHF 89 per document.

Key Points Included in This Convertible Loan Agreement

Specification of the loan amount, term, and, if applicable, interest rate
Targets for the financing round, including the minimum amount to be raised and the deadline for its completion
Modalities of calculation of the conversion price, including whether a discount is granted to the lender
Based on the recommendations by Swiss leading experts from the venture capital and private equity sectors

Use This Convertible Loan Agreement if …

… your company needs cash and another round of financing is planned in the foreseeable future

… you want to finance the growth of an early-stage company and participate in its success as an investor

… you do not want to spend weeks or months negotiating the valuation of the company

… you need a fair and industry-established contractual framework to govern your business relationship

What is a Convertible Loan Agreement?

Under a convertible loan agreement, the lender grants the borrower a loan, usually without interest. The key difference to the ordinary loan agreement is that the loan is generally not repaid but converted into shares of the borrower. The lender thus becomes a shareholder of the borrower and the debt capital (loan) becomes equity capital (shares). This is advantageous for the borrower, especially at the early stages, as it does not have to repay the loan with its usually short financial resources. The lender thus agrees to participate in the entrepreneurial risk of the borrower and, in the event of success, benefits from the increase in value that it has helped fund.

The loan is often granted for a short period of time, as it usually serves to bridge the time until the next financing round. Therefore the parties determine the deadline for the next financing round has to take place.

The number of shares issued upon conversion depends on their price (conversion price). The conversion price is calculated by dividing the value of the borrower) by the total number of shares. While determining these parameters, various modalities can be agreed upon, such as price discounts or a valuation cap to compensate for the risk taken by the lender.

In principle, the issue of new shares upon conversion requires the consent of the borrower’s shareholders. To ensure that the shares are delivered, the lender should therefore request a declaration of consent from the shareholders before disbursing the loan.