Convertible notes are a common funding choice when starting a business. They let investors loan money to a potential startup during its initial funding phase and receive a share of the stock in return. Your business attorney can guide your specific situation, but generally, this funding option offers several hard-to-beat benefits that can ensure success for both the investor and your company. Here’s a closer look at why you should consider this option before moving forward with traditional financing. 

What Are the Benefits of Offering Convertible Notes?

1. Reduces Valuation Issues

Valuation is a crucial part of investing, determining how much the business is worth and the amount that shareholders will receive for their portion of the venture. With startups, it can be challenging to provide an estimate when there’s no data available. 

This can cause issues when investors file their taxes and may cost more than expected. Convertible notes eliminate this problem by not requiring valuation until the second round of financing. They cause the investment to be seen more like a loan and offer an adequate amount of protection. 

2. Fixed Income

A business attorney can advise you on specifics, but typically, your investors won’t have worries about losing money when working with a convertible note. Since they act as direct loans, the amount of equity they receive over the agreed-upon timeframe remains the same. This ensures a reliable form of income and could produce peace of mind. 

3. Conversion Provisions

The main draw of a convertible note is that it guarantees equity in exchange for an investment. For example, once it reaches a particular threshold, it becomes eligible for qualified financing. This means that the original amount, along with any interest that it acquired, will become individual shares of whatever was just sold. It increases an investor's chances for success by providing more than they would’ve received during a later round of financing.

If you’ve got an idea for a startup, reach out to the business attorneys at Beard Law Firm, LLC in West Plains, MO. They have over 20 years of experience and are well-versed in the intricacies of business law. Their firm is highly skilled in reviewing contracts and will help you to ensure that everything is in order. They also understand real estate law and can provide the guidance you require when selecting a commercial property. Call (417) 255-0320 to schedule a consultation, or visit the website for additional information on their services.