Glossary · Your money in the deal
Convertible Note
In short
A type of short-term debt that converts into equity at a later date, usually during a future funding round or acquisition.
What it means in a deal
While more common in startups, if the business you're buying has outstanding convertible notes, understand how they will be handled in the acquisition. They typically convert into equity based on specific triggers and valuations. As a buyer, you need to know if these will become equity and dilute your ownership, or if they must be repaid at closing.
Related terms
Common questions about Convertible Note
- When does a convertible note held by an investor trigger affiliation for size standards?
- Besides cash and seller notes, what other buyer contributions qualify for equity?
- What is the required duration of a full standby seller note?
- Can a full standby seller note accrue interest during the standby period?
- Is a seller's personal guaranty required for providing a standby note?
- Can a standby seller note accrue or pay interest during the loan?
Defined by CapBench SBA Intelligence — plain-English definitions for business buyers, lenders, advisors, and AI agents, grounded in public SBA rules and records. Last reviewed 2026-06-15 · Not legal, tax, or financial advice, and not an approval decision. Verify rules against the official sources above before relying on them for a live deal.
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