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A Convertible Loan Note is a financing tool that lets investors lend money to startups with the option to convert their loan into company shares later. It's particularly popular among Malaysian tech startups and SMEs because it offers flexibility when a company's exact value is hard to determine early on.

Under Malaysian securities law, these notes give lenders specific rights - they can either get their money back with interest or become shareholders at a pre-agreed price, usually during the next funding round. This conversion typically happens at a discount to reward early investors for their initial risk, while helping companies manage cash flow during their growth phase.

Use a Convertible Loan Note when your startup needs quick funding but can't agree on a firm valuation with investors. This tool works especially well for Malaysian early-stage companies during pre-Series A rounds, where traditional equity deals might be premature or too complex.

The ideal timing is when you need capital for immediate growth opportunities but expect your company's value to increase significantly within 12-24 months. Malaysian startups often use these notes during bridge financing rounds or when approaching angel investors who want the flexibility to convert their investment into equity at more favorable terms during the next major funding round.

• Basic Conversion Notes: Standard agreements with straightforward interest rates and conversion triggers, typically used by Malaysian SMEs seeking seed funding
• Capped Notes: Include a maximum valuation cap to protect investors from dilution if the company's value rises dramatically
• Discount Notes: Offer early investors a set percentage discount on the next funding round's share price
• Interest-Free Notes: Structured without interest payments but with more favorable conversion terms, popular among family offices in Malaysia
• Hybrid Notes: Combine multiple features like caps, discounts, and interest, often used in larger bridge rounds

• Startup Founders: Issue these notes to raise capital while maintaining control and postponing complex valuation discussions
• Angel Investors: Provide early-stage funding through these notes, gaining potential equity stakes with built-in protections
• Corporate Lawyers: Draft and customize the terms, ensuring compliance with Malaysian securities regulations
• Financial Advisors: Structure the conversion terms and advise on timing of funding rounds
• Company Directors: Approve and execute the notes as part of their corporate governance duties
• Securities Commission Malaysia: Oversees compliance with relevant fundraising regulations

• Company Details: Gather complete corporate information, including registration number and authorized signatories
• Investment Terms: Define loan amount, interest rate, maturity date, and conversion triggers
• Valuation Metrics: Determine discount rate and valuation cap for future equity conversion
• Securities Compliance: Check Malaysian Securities Commission requirements for private placement
• Board Approval: Secure necessary corporate authorizations and shareholder consents
• Documentation Review: Our platform generates precise, compliant notes tailored to Malaysian law
• Signing Process: Plan for proper execution with witnesses as required by local regulations

• Principal Terms: Clearly state loan amount, interest rate, and maturity date
• Conversion Rights: Detail triggers, pricing formula, and share class upon conversion
• Securities Provisions: Include mandatory disclosures under Malaysian securities regulations
• Default Clauses: Specify events of default and remedies available to noteholders
• Subordination Terms: Define ranking against other company debts
• Transferability: State conditions for note transfer or assignment
• Governing Law: Explicitly reference Malaysian law and jurisdiction
• Execution Block: Include proper signature formats and witness requirements

A Convertible Loan Note differs significantly from a Loan Agreement in both structure and purpose. While both involve lending money, their fundamental approaches and outcomes are quite different, especially under Malaysian financial regulations.

• Investment Intent: Convertible Loan Notes are designed primarily as investment vehicles with future equity conversion rights, while Loan Agreements focus purely on debt repayment
• Flexibility: Convertible notes offer variable returns through equity conversion, whereas loan agreements have fixed repayment terms
• Regulatory Framework: Convertible notes fall under Malaysian securities laws and require specific disclosures, while standard loans follow banking regulations
• Risk Profile: Convertible notes typically carry higher risk but greater potential returns through equity participation, compared to loan agreements' fixed returns
• Documentation Complexity: Convertible notes include sophisticated conversion mechanisms and valuation formulas, while loan agreements focus on repayment schedules and security