Wyoming Convertible Secured Promissory Note

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Multi-State
Control #:
US-ENTREP-0036-2
Format:
Word; 
Rich Text
Instant download

Description

A Convertible Note Subscription Agreement details the factors in the coversion of a note. A convertible note is aform of short-term debt that converts into equity, typically in conjunction with a future financing round; in effect, the investor would be loaning money to a startup and instead of a return in the form of principal plus interest, the investor would receive equity in the company.
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How to fill out Convertible Secured Promissory Note?

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FAQ

Convertible loan notes can lead to dilution of existing shareholders' equity when the notes convert. This can be a disadvantage for start-ups that want to maintain control over their company.

Secured promissory notes have collateral behind them to secure the loan. Unsecured notes might have a personal guarantee but no valuable collateral, which carries a higher degree of risk of financial loss. Promissory notes are only as sound as the companies or projects there are financing.

A secured convertible promissory note, or SCP for short, is a type of security instrument that gives the holder the right to convert their debt into equity in the issuer company. Typically, an SCP will convert at a discount to the market value of the company's shares at the time of conversion.

Typical terms of convertible notes are: interest rate, maturity date, conversion provisions, a conversion discount, and a valuation cap.

Enforcing a secured promissory note is simply a matter of either repossessing the secured asset through your own efforts, or hiring a professional agency to accomplish the task on your behalf. These agencies will charge a set fee for their services, but they usually have a very high rate of success.

Common provisions of a convertible debt financing include: The interest rate. Usually somewhere between 4% and 8%. The maturity date. Usually 12?24 months. A mandatory conversion paragraph. ... An optional conversion paragraph. ... A change of control provision. ... A conversion discount. ... A valuation cap. ... An amendment provision.

The basic concept for valuing a convertible note is the same in theory as the valuation of any other financial asset. The value of the note is equal to the present value of the future income that the convertible note will receive, discounted to the present value based on its associated risk.

The main disadvantages of convertible note offerings are equity dilution and near?term stock price impact and, if the stock price fails to appreciate above the conversion price, potential refinancing risk.

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Wyoming Convertible Secured Promissory Note