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Convertible Loan Agreement

Posted byadminon15 09 2021. 0 Comments

. As with many things in life, convertible bonds are not the perfect solution to any type of financing situation, nor is it a trap that can be avoided as a principle. If it is necessary to raise money quickly (or a major competition for a “hot” start-up), a convertible can certainly be the instrument of choice if it is properly adapted to the situation**. In particular, these are the most common terms an entrepreneur can find in a converted loan, at least based on what we`ve seen in Credo Ventures. 5. Security – The company`s lending obligations under the loan agreement take precedence over all other debts of the company. Like proportional rights which, as we have seen, are not standard, but which, in our opinion, should be generally accepted on request, information rights are generally not part of the standard converted loan models, but most often undisputed when desired by the lender. The explanatory memorandum is similar to proportional law: there is no valid reason why a changing debtor should not be informed of the company`s affairs, as if he already held the conversion shares. In our experience, it is therefore increasingly common to add to the credit agreement a secondary letter or twin clauses that provide for both the proportional right of access and the right of access. The parties should also consider all interest that applies to the loan. Unlike a pre-subscription, a converted loan can be remunerated.

However, the participating entity may attempt to negotiate a position in which the loan is remunerated only if it is repaid instead of being converted into equity. In addition, the holding company may attempt to defer interest payments as part of the converted loan. This would have natural benefits for the company`s cash flow. This credit agreement does not contain the provisions favourable to the loan, which would generally be included in credit agreements that document the loans of independent third parties. Second, the converted loan is used at times when investors and entrepreneurs fail to agree on valuation, especially when setting a discount, but not necessarily the valuation cap (see below). . . .

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