Key takeaway
For many businesses, particularly those operating in regulated
or credibility-sensitive sectors, how funding appears on the
balance sheet can materially affect stakeholder confidence,
regulatory perception and future fundraising strategy. In this
article we discuss the accounting issues around a popular
capital-raising structure – convertible loan notes
(CLNs).
What are convertible loan notes?
Convertible loan notes (CLNs) are a type of startup financing
instrument that starts as a loan but can later convert into equity
(typically preferred shares) in the company, usually during a
future investment round.
Why are convertible loan notes used?
Convertible loan notes (CLNs) are frequently used to raise
significant capital, sometimes in excess of £100m. Although
legally structured as debt, they are often intended, commercially
and strategically, to achieve equity classification in the
accounts. They are therefore listed as a net positive rather
