Assign Signed Convertible Note Agreement Template For Free

A convertible note agreement is a legal document that outlines the terms and conditions of a loan that can be converted into equity in the future. Essentially, it's a way for startups to raise money without having to give away equity upfront.

Convertible notes provide startups with an initial round of financing, without the need to come up with a valuation for investors or a proof of profits for banks. Unlike regular debt, instead of getting repaid in principal and interest, investors receive preferred stock based on the terms set in the convertible note.

Convertible Notes are loans ? so they are recorded on the Balance Sheet of a company as a liability when they are made. Depending on the debt's maturity date, they can either be shown as a current liability (loans maturing within 12 months) or as a Long-term liability (loans maturing over 12 months).

Convertible Note Meaning: A Hybrid of Debt and Equity. What is a convertible note? In short, a convertible note is originally structured as a debt investment but has a provision that allows the principal plus accrued interest to convert into an equity investment at a later date.

So the cash coming in from your convertible note will generally equate to the liability that you add to the balance sheet. And, if your accounting is doing a good job, the accrued interest is a non-cash expense that flows through your income statement and impacts your accumulated net income in the equity section.

A convertible note is a short-term debt agreement that converts into equity at a future date. Usually, this happens when one of these events takes place: ? The company raises enough capital to reach a pre-determined benchmark.

The convertible notes have a term sheet that acts as a non-binding agreement used for both the startups and investors. This term sheet is used during the funding round, and it acts as the base of all legally binding documents that are used in the future. It works only when both parties come to an agreement about this.

For example, an angel investor invests $300,000 in a startup as a convertible note. The terms of the note are a 20% discount and automatic conversion after a qualified funding round of $1 million.