Convertible Loan Agreement

Key Points and Template

On this page, we provide you with an overview of the most important aspects of a Convertible Loan Agreement in Switzerland, including the elements to be taken into account when drawing up the agreement.

Subsequently, we will provide you with a legally compliant template of a Convertible Loan Agreement  under Swiss law.

Use the 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

Key Points Included in this Convertible Loan Agreement

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 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, such as price discounts or a valuation cap to compensate for the risk taken by the lender.

In principle, the issue of new share 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.

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All our templates have been checked and validated by renowned Swiss lawyers. They are constantly updated according to legal practice.

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