Practical Law UK Glossary 4-107-6780 (Approx. 6 pages)
Glossary
Loan notes
Financial instruments which evidence the existence of a debt between a borrower (issuer) and one or more lenders (noteholder(s)) and the promise by the issuer to repay the amounts outstanding under the loan notes to the noteholder(s). Also commonly known as loan stock, loan notes constitute a particular type of debt security called debentures.
Loan notes can be issued by corporate entities as well as individuals for a number of different purposes. For a standard instrument constituting general purpose loan notes, see Standard document, Loan note instrument.
In the context of a private equity transaction, an investor will often subscribe the majority of its investment for loan notes (also known as equity investor loans) alongside its much smaller equity investment.
In the context of venture capital financing, convertible loan notes are typically issued by a company as a short-term bridge facility ahead of a first round of venture capital investment. Convertible loan notes represent a right to subscribe for, or convert the loan note into, shares in the issuing company and so will generally be unsecured. For a standard document convertible loan note instrument, see Standard document, Convertible loan note instrument.