Convertible loans
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Written by Support
Updated over a week ago

Intro

A convertible note or convertible loan is a loan that can be converted into shares when new financing is obtained. In Ledgy, these can be created with interest, maturity dates, valuation caps and discounts. This article explains how to create convertible loans, what transaction-specific settings are made, what the components mean, and how to convert the loans into shares.


How to create convertible loans?

  1. Go to Ownership > Transactions > Add transaction > Convertible Loan.

  2. The mandatory fields are:

    • Stakeholder: The person who invests and receives the convertible loan.

    • Issue date: When the convertible loan was issued.

    • Investment: The amount that the stakeholder has invested.

    • Currency: The investment currency.

  3. The following fields are optional:

    • Maturity and discount

      • Maturity date: It is the date in the future by which the loan should be repaid

      • Cap: It is the maximum valuation at which the convertible note can convert into equity.

      • Discount: This is the rate at which the convertible note holder can buy shares.

    • Interest

      • Non-compounding: Enter the daily interest rate.

      • Interest start date: The time when the interest on the investment starts.

      • Days per year: The number of days for calculating daily interest.

      • Pay back at conversion: The decision of whether the interest will be repaid when the convertible loans are converted. If "yes" is selected, the accrued interest is not considered when calculating the conversion in the scenario modelling.

    • Documents: You can upload a document and link it to the convertible loan.

    • Stakeholder beneficiary: A beneficiary is an economic beneficiary behind a legal entity. If beneficiaries are set, you can view the cap table regarding legal or economic distribution. This can also be used in Ledgy to manage pooled investments.

    • Internal note: If you want to add a message related to the transaction.

  4. Clicking on the Save button will create a convertible loan transaction in your cap table.


How do you convert convertible loans into shares?

  1. Go to Ownership > Transactions > Search for the convertible loan.

  2. There are two options to convert loans into shares:

    1. Click on the Convert to shares button on the left-hand side.

    2. Click the three dots on the right-hand side and then on Convert to shares.

  3. Define the following options for the loan conversion:

    • Conversion date: The date when the loan will be converted into shares.

    • Number of shares: The number of how many shares that will be issued.

    • Share class: Define what share class the converted shares will have.

      Optional fields:

      • Documents: You can upload and link a document to the loan conversion.

      • Internal note: If you want to add a message related to the transaction.

  4. Clicking on the Save button will create a share issuance transaction.


How do you pay back a convertible loan?

  1. Go to Ownership > Transactions > Search for the convertible loan > Click the three dots on the right-hand side and then on Pay back.

  2. Define the following options for the payback:

    • Date: The date when the loan will be paid back to the stakeholder

    • Total payment: The repayment amount.

    • Currency: The payback currency.

    • Define the following options for the payback:

      • Documents: You can upload and link a document to the loan conversion.

      • Stakeholder beneficiary: A beneficiary is an economic beneficiary behind a legal entity. If beneficiaries are set, you can view the cap table regarding legal or economic distribution. This can also be used in Ledgy to manage pooled investments.

      • Internal note: We pre-populate this field by default with "Convertible payout".

  3. Clicking on the Save button will create a payout transaction.


FAQ

How do a discount and a valuation cap affect the share price when converting convertible loans?

If the number of shares is calculated in scenario modelling, the following formula calculates the share prices.

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