Are you looking for a flexible financing solution for your company without having to conduct a financing round?
A convertible loan (also called a convertible bond) makes it possible to raise capital that is later converted into shares. It offers a quick and uncomplicated financing option that can be suitable for growth-oriented companies.
In brief: what is a convertible loan?
A convertible loan is a fixed-income security that offers investors not only regular interest payments but also the opportunity to easily convert their loan into company shares at a pre-determined conversion price. This financing instrument combines the stability of a traditional loan with the opportunity to acquire equity in the company at a later stage. This allows investors to benefit from positive company performance. At the same time, in the event of a decline in the company’s value, the principal amount of the loan remains intact, thereby limiting risk. Companies use convertible loans to raise capital without immediately issuing a large number of shares, thereby maintaining a favorable equity ratio. Upon conversion, the loan is converted into shares, which can occur at the end of the term at the latest or at a specifically defined conversion point, triggered by certain conditions (so-called trigger events).
Our Service Packages
Service package 1:
Drafting of a convertible loan agreement
A fixed fee starting at CHF 1,500 (plus VAT)
depending on complexity and scope.
What can you expect?
- Initial consultation: We analyze the financing needs of your company and develop the key points of the convertible loan together.
- Drafting the contract: Your customized convertible loan agreement is tailored to the specific requirements of your company.
- Legal protection: Ensuring that the contract meets all relevant legal requirements and protects your company’s interests.
- Feedback round: After the contract drafting phase, we discuss the contract together in a feedback round and make any necessary adjustments.
- Support: We also offer additional services such as representation and support in contract negotiations with investors (not included in the fixed price).
How long does it take?
As a rule, 1 to 2 weeks.
Who is it for?
Start-ups and growth-oriented companies looking for flexible financing solutions.
What is achieved?
- Flexibility: Your company receives capital from investors without having to conduct a complex financing round. The terms of the convertible loan can be flexibly designed.
- Fast financing: The uncomplicated structure and process of a convertible loan gives your company faster access to capital.
- Legal certainty: An individually designed convertible loan contract minimizes legal risks and safeguards your interests.
Service package 2:
Drafting of a convertible loan term sheet
A fixed fee starting at CHF 1,000 (plus VAT)
depending on complexity and scope.
What can you expect?
- Initial consultation: We analyze your company’s financing objectives and support you in defining the structure and conditions of your convertible loans.
- Drafting: We create a term sheet tailored to your specific needs and negotiations with investors. It serves as a clear, negotiable basis for convertible loan agreements with investors. We ensure that all important parameters such as interest rate, discount, trigger events and other relevant details are clearly and transparently defined.
- Legal validation: Ensuring that the term sheet covers all the essential points in a legally compliant manner and protects your interests.
- Feedback round: After the term sheet has been drawn up, we offer a feedback round to discuss the document and make any necessary adjustments.
How long does it take?
As a rule, 1 to 2 weeks.
Who is it for?
Start-ups and growth-oriented companies that are looking for a flexible financing solution and need a legally binding term sheet as a basis for negotiating convertible loans.
What is achieved?
- Clear basis for negotiations: You receive a well-structured term sheet that defines all the important terms and conditions for the convertible loan and serves as a basis for negotiations.
- Flexibility: The term sheet makes it possible to agree flexible terms that are tailored to the company’s needs.
- Legal certainty: A professionally prepared term sheet ensures that all relevant legal aspects are taken into account and helps avoid later disputes.
How can Vectra Advisors help?
Vectra Advisors is your first choice for convertible loans and term sheets. Our
LAWYERS+ support you quickly and pragmatically with all your legal needs. Let’s talk and get started!
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FAQ: Frequently asked questions about convertible loans
Convertible loans are a special type of loan that offer investors the opportunity to exchange the loan for shares in the company at the end of its term. The exchange for shares is based on a predetermined conversion price.
For companies that are not listed on the stock exchange, the share price at the time of conversion plays a crucial role, as it influences the attractiveness of the exchange.
Pros of convertible loans:
- Combination of fixed interest, which allows investors to achieve returns, and the opportunity to acquire shares in the company at a later date.
- Investors benefit from an increase in the company’s value if it performs successfully.
- If the company valuation does not increase as expected (loss on the share price), the convertible loan remains a debt with interest and repayment obligations.
Disadvantages of convertible bonds:
- High risk for investors if the company valuation does not increase as expected, as the conversion into shares becomes unattractive.
- Often lower interest compared to classic loans, since the option to convert replaces part of the return.
- After conversion, investors cannot sell their shares immediately or only to a limited extent if there is no liquid market for the shares.
There are various special forms of convertible loans in addition to the normal convertible loan, including:
- Option loan: In addition to the normal loan, an option to purchase shares in the same company is issued.
- Mandatory convertible loan: At the end of the term, the loan is automatically converted into shares.
- Reverse convertible: A loan where the issuer has the right to deliver shares in the issuing company instead of cash.
The choice of the appropriate type of convertible loan depends on the individual investment objectives and risk profile.
The share price of the issuing company listed on the stock exchange has a significant influence on the attractiveness of the convertible loan. If the share price at the time of conversion is well above the conversion price, conversion into shares is advantageous.
If, on the other hand, the price is below the conversion price, e.g. in the event of a price loss, the convertible loan remains a loan and the investor receives it back at the nominal value at the end of the term. The share price thus determines the ideal time to invest in convertible loans.
The stock market offers investors the opportunity to buy and sell convertible loans. Convertible loans can be traded on the stock market just like normal shares and loans.
Individual convertible loans are available there, as are funds that invest in many different convertible loans. Investors should analyze the share price and the conversion price carefully in order to make informed decisions.
