Before moving ahead with our discussion regarding the popularity of CLNs as a method of fundraising, we need to know about it in some details. A CLN is basically a type of short-term debt. It is converted into equity shares later on. It is beneficial for the investors as they may get shares at a discounted rate. The discounted price for the shares is generally determined by the future valuation of the company. Large numbers of smaller companies or those at initial stages opt for CLNs in order to raise funds so as to carry on with their operations. Let us now see what makes CLNs the popular method of fund-raising:-
Flexibility And Simpler Processing
Perhaps one of the major factors that make convertible loan note a popular method of fundraising for the companies is the flexibility associated with the entire process. Also it is quite simple to attract investors to raise the funds required for the operations of the given company. The terms of the note can be changed at any point of time without any issues. In case, you need to change the terms of the given loan note, you may very easily do so.
Time And Money Saving
CLNs prove to be a time and money saving option for the companies desirous of raising funds for them. It is because this type of loan is short-term in nature. Also you are saved from paying huge legal fees in case of other types of loans. Thus it is beneficial for you in multiple ways.
Complete Control Over Ownership
In the case of CLN, you have complete control over the ownership of your company. It is because you are at liberty to get funds from an investor of your choice. Also the investor is not required to secure more funds. Thus you retain the ownership of your company in absolute manners.
Rule Out The Need For Valuation At Initial Stages
Unlike other types of loans or debts where there is the need for valuation of the given company or business at initial stages, CLN gives you the option to get your company evaluated at later stages of the fundraising process.
Safety Of The Investors
Due to the conversion discount given to the investors in case of convertible loan note, they will readily take risks on your company. Their interest in your company is protected by the valuation cap of the discounted share prices. Safety assurance propels the investors to provide you the requisite funds.
These are all some of the key reasons that make CLNs a popular method for the companies to raise their funds. It is a simple and easy way out to get funds for the companies that have great growth potential but lack the financial aid.
