Who is our offer for?
Suitable for:
✅ Startups seeking capital
✅ SMEs with potential investors
✅ Founders who want to maintain control
Unsuitable for:
❌ Companies without a growth strategy
❌ Startups without a need for external funding
Definition
A convertible loan (Convertible Loan) is a financial instrument that allows investors to provide capital to a company in the form of a loan that can be converted into equity at a later point in time. This means that instead of a fixed repayment in the future, the investor receives shares in the company.
Scope and Terms
Capital Provision
The investor grants the startup a loan, which is initially recorded as debt on the company's books. The contract specifies the conditions for the later conversion to equity.
Conversion to Equity
The loan is converted into shares of the company at a specific event, such as during a future financing round. This usually occurs at a pre-agreed discount on the then-current company valuation ("Discount") or at an agreed maximum valuation ("Valuation Cap").
Interest Payment and Repayment
Many convertible loans include an interest payment or a repayment option if there is no conversion. However, most investors aim for conversion into equity to participate in the long-term success of the company.
Potential Challenges
Tax Pitfalls
In Switzerland, convertible loans can have tax implications, particularly concerning the conversion of debt into equity. It is recommended to carefully examine the tax consequences to avoid unwanted burdens.
Issuance of Shares
When converting a convertible loan into equity, new shares are issued, leading to dilution of the existing shareholders' shares. Founders should be informed about the dilution effects and their consequences as part of scenario planning.
Uncertainty in Conversion
Although a conversion is the goal, there is no guarantee that it will actually take place. This can present challenges for investors during times of economic uncertainty.
