Glossary · UK
What is Convertible Loan Note?
A short-term loan to a company that can convert into equity shares at a later funding round, rather than being repaid in cash.
Full Definition
A convertible loan note (CLN) is a form of debt used by UK startups to raise early-stage finance quickly. An investor lends money to the company, and instead of expecting cash repayment, the loan typically converts into shares at the next priced funding round, often with a discount or a valuation cap as a reward for early risk. It defers the tricky question of valuation until more information is available. In the UK, CLNs are common in seed funding, though they usually do not qualify for SEIS or EIS tax relief unless structured carefully, since those schemes generally require shares to be issued for cash at the time of investment. Interest may accrue and roll into the conversion. Founders value the speed and lower legal cost; investors value the discount and downside protection if the company is wound up. Always review the conversion triggers, cap, discount, and maturity date in the note's terms.