Document background
A Convertible Loan Agreement is commonly used in Hong Kong's startup and growth company ecosystem as a bridge financing tool. This type of agreement is particularly valuable when companies need immediate funding but determining an accurate company valuation is challenging or premature. The document structures a loan that can convert into equity shares upon specified trigger events (such as a qualified financing round, IPO, or maturity), offering investors potential upside through equity participation while providing initial downside protection through debt characteristics. The agreement must comply with Hong Kong's legal framework, particularly the Companies Ordinance and Securities and Futures Ordinance, and typically includes provisions for interest rates, conversion discounts, valuation caps, and investor protections. It's especially popular among startups and growth-stage companies seeking to raise capital while deferring valuation discussions.
