The CLA outlines specific terms such as the loan amount, interest rate, conversion conditions, and the conversion price. The conversion can be triggered by various events, such as reaching a certain milestone, a new funding round, or the loan’s maturity date. This flexibility makes CLAs an attractive option for both investors and companies. Investors benefit from the potential upside of equity ownership, while companies can secure funding without immediate dilution of ownership.
Key sections of a CLA typically include definitions, loan terms, interest payments, conversion terms, equity protection, covenants, and events of default. By aligning the interests of both parties, a Convertible Loan Agreement helps foster growth and stability in the early stages of a company’s development.
