Convertible Loan Note Template for United States

A Convertible Loan Note is a popular startup funding tool in the Philippines that starts as a loan but can transform into company shares later. It lets investors lend money to a startup while postponing the tricky question of company valuation until a future funding round or specific milestone.

Under Philippine securities laws, these notes give investors the best of both worlds - they earn interest like a regular loan but can also convert their investment into equity at a discount, usually when the company raises its next round of funding. This makes them particularly useful for early-stage Filipino startups that need quick capital but aren't ready for a formal valuation yet.

Consider using a Convertible Loan Note when your Philippine startup needs quick funding but isn't ready for a formal valuation. This works especially well during your seed round or bridge financing, where traditional equity deals might be too complex or premature. It's particularly valuable when you have promising growth potential but lack the revenue history for accurate company valuation.

Many Filipino founders use these notes when dealing with angel investors who want flexibility in their investment terms. The notes also make sense when you're close to a major milestone that could significantly boost your company's value, like launching a new product or securing a big contract. This way, both you and your investors can benefit from future valuation increases.

• Basic Convertible Notes: Most common in Philippine startups, featuring standard interest rates and conversion discounts, typically converting at the next funding round
• Capped Convertible Notes: Include a maximum valuation cap to protect investors from dilution if the company's value rises dramatically
• Bridge Notes: Shorter-term convertible loans designed to fund operations until a specific milestone or next funding round
• SAFE-Style Notes: Simplified convertible instruments without interest rates or maturity dates, adapted to comply with Philippine securities regulations
• Industry-Specific Notes: Customized versions with terms tailored to specific sectors like tech, real estate, or manufacturing

• Startup Founders: Create and negotiate these notes to secure early-stage funding without immediately giving up equity in their companies
• Angel Investors: Provide the initial funding through convertible notes, often preferring this format for its flexibility and potential upside
• Corporate Lawyers: Draft and review the notes to ensure compliance with Philippine securities laws and protect both parties' interests
• Board Members: Approve the terms and authorize the issuance of convertible notes as part of company financing strategy
• Securities Regulators: Oversee compliance with Philippine investment laws and ensure proper documentation of these financial instruments

• Company Details: Gather your SEC registration, business permits, and latest financial statements
• Investment Terms: Define loan amount, interest rate, maturity date, and conversion discount or valuation cap
• Trigger Events: Specify conditions that will trigger conversion, like funding rounds or exit events
• Investor Information: Collect complete details of all participating investors and their investment amounts
• Board Approval: Secure necessary board resolutions authorizing the note issuance
• Compliance Check: Review Philippine Securities Regulation Code requirements for your specific case
• Document Generation: Use our platform to create a legally-sound convertible note that includes all required elements

• Loan Terms: Principal amount, interest rate, and maturity date clearly stated
• Conversion Rights: Detailed mechanics of how and when the loan converts to equity
• Valuation Terms: Any caps, discounts, or specific valuation methods for conversion
• Qualifying Events: Specific circumstances that trigger automatic or optional conversion
• Investor Rights: Information rights, pre-emptive rights, and other protective provisions
• Default Provisions: Consequences of non-payment or breach of terms
• Security Interest: Any collateral or guarantees securing the loan
• Governing Law: Clear statement of Philippine law application and jurisdiction

A Convertible Loan Note differs significantly from a Loan Agreement in several key aspects, though both are common financing tools in the Philippines. While a regular Loan Agreement is straightforward debt with fixed repayment terms, a Convertible Loan Note offers more flexibility and potential upside for investors.

• Investment Purpose: Convertible notes aim primarily at future equity conversion, while loan agreements focus on debt repayment
• Risk-Reward Profile: Convertible notes offer potential equity upside, whereas loan agreements provide fixed returns through interest
• Repayment Structure: Convertible notes typically convert to shares instead of requiring cash repayment, while loan agreements mandate specific repayment schedules
• Documentation Complexity: Convertible notes include conversion mechanics and valuation terms, making them more complex than standard loan agreements
• Target Users: Startups commonly use convertible notes for early funding, while loan agreements suit established businesses seeking pure debt financing