Sometimes a company might need a temporary cash top-up to manage cashflow, and if you have a strong owner, or other connection for that matter, who is willing to lend the company money, it may be a great solution. We have a developed a simple Loan Agreement to that purpose.
We have used “STIBOR 3” as the base for interest and added 8 percent as the default – this is the main thing to be negotiated in the agreement. When this post is published (September 2022), it means an interest of 9.8%. That is roughly what Almi Business Partner is currently charging, making it a kind of market rate, albeit a rather high one. For a more friendly loaner, for example a major shareholder, more company friendly terms might make sense.
When not to use a Loan Agreement?
Consider that the loan will be booked as debt in terms of accounting. That means that if all the money you loan are used for direct expenses you may end up with a negative total balance, and therefor be obliged to establish a certain kind of balance sheet (Sw. Kontrollbalansräkning) intended to manage a company which is considered to be high risk to default on their payments and bankrupt. This is a serious situation which you most definitely want to avoid. If there is a risk for this happening, perhaps a loan is not your best option. In that case you may be better off issuing new shares instead. If the valuation of the company is difficult to do or not beneficial right now, you can issue a WISE-convertible instead. A WISE works roughly like a convertible loan which is always converted to shares instead of having the option to pay it back in cash, but unlike a normal convertible note (and thanks to that it can not be paid back) the money will be accounted as own capital when you receive them. The WISE is built into the StartupTools Platform and you can read more about it here.
