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A Convertible Loan Note is a popular funding tool in the UAE's startup ecosystem that starts as a loan but can transform into equity shares later. It lets investors lend money to early-stage companies while postponing the tricky question of company valuation until a future funding round or specific milestone.

Under UAE commercial law, these notes give investors unique advantages: they typically earn interest while holding the loan, get a discount on future share prices, and can convert their investment into equity when the company's value becomes clearer. For startups in Dubai and Abu Dhabi's free zones, these notes offer a flexible way to raise capital without immediately giving up ownership stakes.

Use a Convertible Loan Note when your startup needs quick funding but you can't agree on a company valuation yet. This instrument works particularly well for UAE tech companies in their pre-seed or seed stages, especially in Dubai's innovation hubs where traditional equity investments might be premature.

The timing is right when you need bridge financing between major funding rounds, or if you're approaching a significant business milestone that could boost your valuation. UAE startups often turn to these notes during rapid growth phases or when preparing to enter new markets in the GCC region, as they offer faster deal closure than standard equity agreements and protect both founders and investors until the company's true value becomes clearer.

• Standard Convertible Notes: Basic form used in UAE free zones, featuring interest rates of 5-8% and a standard 15-20% valuation discount.
• SAFE-Style Notes: Popular among Dubai tech startups, these notes remove the debt component and focus purely on future equity conversion.
• Capped Notes: Include a maximum conversion valuation, protecting investors from dilution in high-growth scenarios.
• Interest-Free Notes: Shariah-compliant versions used in Islamic finance structures, replacing interest with profit-sharing mechanisms.
• Bridge Notes: Short-term instruments with higher interest rates, typically used for immediate funding needs before a larger financing round.

• Startup Founders: Create and sign these notes to secure early-stage funding while maintaining control of their company valuation
• Angel Investors: Provide capital through Convertible Loan Notes to gain future equity positions at favorable terms
• Corporate Lawyers: Draft and structure the notes to comply with UAE commercial law and free zone regulations
• Financial Advisors: Guide both parties on terms, valuations, and conversion triggers
• Company Directors: Approve and execute the notes as part of their corporate governance duties
• Shariah Advisors: Review and modify terms for Islamic finance compliance when needed

• Company Details: Gather current company valuation, registration documents, and shareholder information from UAE registry
• Investment Terms: Define loan amount, interest rate, maturity date, and discount rate for future equity conversion
• Conversion Triggers: Specify events that activate conversion, like funding rounds or exit events
• Legal Compliance: Check free zone regulations and Shariah compliance requirements if applicable
• Board Approval: Secure necessary corporate authorizations and document them properly
• Document Generation: Use our platform to create a legally-sound note that includes all required elements
• Final Review: Verify all terms align with both parties' expectations before signing

• Parties and Identities: Full legal names, addresses, and registration details of lender and borrower
• Loan Terms: Principal amount, interest rate, and maturity date in compliance with UAE lending laws
• Conversion Rights: Detailed mechanics and triggers for converting debt to equity
• Valuation Cap: Maximum company valuation for conversion calculations
• Discount Rate: Percentage reduction on future round pricing
• Default Provisions: Consequences and remedies under UAE commercial law
• Governing Law: Specify applicable UAE jurisdiction and dispute resolution method
• Shareholder Rights: Post-conversion voting and participation privileges

A Convertible Loan Note differs significantly from a Loan Agreement in several key aspects, particularly in the UAE business context. While both involve lending money, their purposes and outcomes are quite different.

• Investment Intent: Convertible Loan Notes are designed primarily as investment vehicles with future equity conversion rights, while Loan Agreements focus purely on debt repayment
• Risk Profile: Convertible Notes typically carry higher risk but offer potential equity upside, whereas Loan Agreements provide fixed returns through interest
• Term Structure: Convertible Notes often have flexible repayment terms tied to funding events, while Loan Agreements follow strict repayment schedules
• Security Requirements: Standard Loan Agreements usually require collateral under UAE law, but Convertible Notes generally don't need security
• Documentation Complexity: Convertible Notes include sophisticated conversion mechanisms and valuation formulas, making them more complex than straightforward Loan Agreements