Payments · Investors

How to structure terms of repayment of investor loan?


December 22nd, 2015

I am buying into an existing company, in which I will also assume an important C-level position. The arrangement is that I will invest my money over 6 months. We are stuck on what happens if at the end of the 6 months we decide to part ways. I want to be repaid within a fixed period of time (6-12 months), but the company does not want to be tied down to any time limit for repayment. Do you have any other ideas as to how to structure this part of the agreement?

Steve Simitzis Founder and CEO at Treat

December 22nd, 2015

Typically you would do this as a convertible note, and not expect to be repaid.

Neil Gordon Board Member, Corporate Finance Advisor and Strategy Consultant

December 22nd, 2015

If we presume the ability to pay, at least at some time or another (i.e., you have an expectation of payment), then the range of payment options is something like the following:

On your demand. In this case, we know that won't fly.

In periodic, timed payments. They've rejected that one.

In periodic payments, timed to liquidity of some sort or another, e.g., revenues, profits, cash flow, sale of securities or assets. That might be your middle ground.

As the company's discretion. That doesn't work for you.

Trudi Schifter Founder and CEO at AquaSPE AG

December 25th, 2015

There are two different topics here that in my view you can not mix up. One is whether you are willing to invest in the company, the other is whether you decide to stay working with them after 6 months that has many other factors than return on your $$. Either may a convertible loan or do not, if they need a loan they need cash, so repayment is normally never done, it is converted to shares and since the terms of conversion are determined in advance is considered an investment round that should/must give all investors the same rights. Another way would be to work for free for 3-6 months, and take your pay in shares. Then you should know enough to feel comfortable to either stay or invest.

Lawrence Katz Director at Omnisystems Engineering Consultants

December 25th, 2015

I guess you should look at the original agreement and follow the exit plan. If you did not have one.....big investors mistake