Convertible loan is a great opportunity for investors and startup owners

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In 2021, many useful laws were adopted, one of them is the law " On Limited Liability Companies ", which introduced convenient rules for concluding a convertible loan agreement. By the way, during the year of the law's operation, the volume of venture investments in our country increased almost 3.5 times. In this article, we will explain in simple terms what a convertible loan is and its features, and also talk about the benefits for both parties.

Convertible loan - what is it
A convertible loan is a transfer of funds for the launch and development of a business project, which can be repaid in two ways.

In monetary form with or without interest, depending on the terms of the agreement.
Obtaining a share in the social media marketing service business, the size of which depends on the amount of investment.
The general idea of ​​the law has remained unchanged - an investor can provide funds to a startup in order to receive a share in the company on a designated day or when certain conditions arise. And, thanks to changes in the law, he can now get his money back in full if the project fails.


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Let's look at how a convertible loan differs from other types of investment.
The agreement can specify either a specific date or a specific event after which borrowers must return the money or transfer a share in the business to the investor. Here are some examples of such events:

certain indicators of production output,
exceeding the established amount of profit,
sale of business.
The investor can choose how exactly he wants to get his funds back - in cash or by becoming a founder with the allocation of a share in the business.

A convertible loan agreement is written and notarized. It usually specifies the amount of investment, the percentage of the loan, or the number of shares that the investor will receive as a result. It is also possible to specify a formula by which the return funds will be calculated, instead of a specific amount with interest. At the end, the date or circumstances when the borrower must repay the debt are specified. Another mandatory condition before signing the agreement: the borrowing company must hold a meeting and agree on an increase in the authorized capital or the number of shares with a suspensive condition.