Close Menu

Convertibles – Definition and Alternatives

Get growth capital, but protect your shares and keep control of your company.

Get started
We-don't-tell-you-what-to-do capital

Your company, your funding. With re:cap you’ll get funding without restrictions.

Keep your share of your success

re:cap enables you to drive your business with your own vision – we don’t want equity.

Providers of perspectives

We let your business thrive. We’re here as often and as long as you want us to be.

What is a convertible loan?

A convertible loan is a common debt contract, which is, however, linked to a participation option. Convertible loans are unsecured and usually subordinated - so in the event of the company's insolvency, the lenders are not protected. For the risk, however, you get a discount on the company shares.

Do convertible loans work with equity or debt?

Convertibles are a mixed form of equity and debt (mezzanine capital). A typical example of a convertible loan: A company receives interest-bearing money (debt) on loan from a person. Instead of repaying the amount after a predefined period of time, the claim is converted into a share in the company (equity).

Legally, however, convertible loans do not count as equity. This in turn increases the creditworthiness of companies because banks classify the financing as close to equity - similar to a silent partnership.

Ideal convertible loan alternative

Exchange future revenues for instant capital - without dilution.

Convertible loans: advantages and disadvantages

Convertible financing is particularly suitable for young companies - which is why convertible loans are often used in the start-up environment. Founders receive capital quickly and easily, pushing their entrepreneurial vision and bridging the time until the first or next big financing round, for example.

It works because valuation is not yet the focus at that point. This, in turn, results in a disadvantage: organizations offering convertible loans aim for the lowest possible valuation to obtain more shares - in the worst case, an agreed valuation cap is later significantly lower than the first real company valuation. In addition, the discount on the shares (as risk compensation) is sometimes very high - up to 30%.

Convertible loans are like bets with interest. Another disadvantage of convertible loans is therefore often a lack of motivation of the investors during the loan period. Founders usually benefit from the knowledge and network of the financiers only later - with corresponding growth and success.

Revenue financing as an alternative to convertible loans

re:cap’s revenue financing has decisive advantages over the convertible loan: as a non-dilutive solution, that allows you to convert up to 50% of your ARR into instant upfront cash. Thus, re:cap's revenue financing combines all the advantages of the convertible loan and reverses the disadvantages into further advantages:

- Simple
- Fast
- Flexible
- Non-dilutive
- Including insights and benchmarks

To sum it up: as a subscription company, you get access to our funding platform within 48 hours, keep all your equity, keep full control over your business vision, pay no interest, are not bound to any restrictions, invest with maximum flexibility and additionally benefit from valuable data and insights.

How re:cap works

Digital, fast, seamless. Our platform allows you to get started in minutes, receive funding and growth advice in days not months.

Step 1
Step 2
Step 3
Set up your account and sync your data
Get approved, receive your terms & growth advice
Use financing line

Non-dilutive funding

It’s your business. Stay in charge of it.

Realize growth projects with clear, short-term returns.
Extend your runway and improve your valuation.
Replace, downsize or delay your next funding round.
Optimize cash flow, scale without limits and grow sustainably.

Trusted by over 200 founders like you

Up to 50% of your ARR

Trade future revenue for instant capital that can be flexibly deployed.


Didn’t find an answer? Talk to us.

What is a convertible loan?

The definition of a convertible loan is simple: it is a normal loan in which the company does not repay the borrowed amount after the expiration of the term, but converts it into company shares. It is therefore technically a combination of both equity and debt.

How does a convertible loan work?

The following scenario is a typical example of a convertible loan: A company receives capital with a predefined interest rate. The parties agree on a term and also a discount on the company's shares, which acts as a risk compensation. At the end of the term, the investor receives the shares in the amount of the convertible loan plus interest - so-called qualified capital for the company.

How high are convertible loans?

Usually, convertible loans are around 100,000€ - but they can also be up to 400,000€ and more. To collect as much capital as possible, start-ups often arrange several convertible loans with different investors.

What should a convertible loan agreement regulate?

In principle, there is freedom of contract here - a convertible loan agreement is therefore not subject to any legal rules. The following components are the basis: the amount of the loan, the interest rate and discount, and the term. In addition, some parties agree on a cap (maximum valuation) or a floor (minimum valuation). Subordination is also included in many convertible loan agreements.

What is an alternative to the convertible loan?

Founders can obtain convertible loans quickly and easily and use them flexibly. These advantages also characterize re:cap's convertible financing. However, convertible financing involves giving away shares. This is not the case with re:cap's solution, which is non-dilutive funding for sustainable growth. Therefore, it is an ideal alternative to the convertible loan.