Convertible Loan Agreement

With a convertible loan, you agree that the investor will receive shares in exchange for his investment. You postpone the moment when the investor receives his shares, because you do not yet know exactly what your company is worth. At a certain point, the investment is “converted” from a loan into shares in the company. This can be a pre-agreed date, or when a certain condition is met. The number of shares that the investor will receive is only finally determined later. Also, a range is agreed upon, so that you are not left to chance.

Should I use a fixed-rate interest or Euribor rate?

By linking your interest rate to the Euribor interest rate, it is possible to take out a convertible loan with a variable interest rate. A variable interest rate follows the developments in the money markets and can change daily, whereas a fixed interest rate remains unchanged for an agreed period. Depending on the situation in the market, a variable interest rate can therefore be more advantageous than a fixed rate. But beware, it can also be more expensive. If you prefer not to run any risks, choose a fixed interest rate.

The level of the Euribor interest rates is determined by supply and demand. It is a market interest rate that is set by a large number of European banks and is strongly influenced by economic conditions such as economic growth, the level of inflation, the creditworthiness of banks, mutual trust and consumer confidence.

Which Euribor rate should I use?

Loans that banks contract with each other do not always have the same maturity. That is why there is a Euribor rate for loans with a duration of 1, 2, 3, 6, 9 and 12 months. Do you doubt about the right rate for your situation? Then please contact your accountant or tax adviser.