What Is A Convertible Note?

In essence, a convertible note is a method of raising capital which has elements of both debt and equity.

For more information on the different types of equity financing, have a read of this article: How Does Equity Financing Work?

In basic terms, equity means that investors will get shares in your company, in return for the money they invest.

Debt on the other hand comes with the obligation to pay back the money. The investor (often just called the “lender”) usually gets an interest payment in return.

The reason convertible notes have elements of both debt and equity, is because they are a loan to begin with, which convert into equity after a certain period of time.