Startup Q&A
Why do Banks & Venture Lenders Want to Read Your Startup's SAFE Note & Convertible Debt Documents?
CEO and Founder of Kruze Consulting
Table of contents
Banks & Venture Lenders want to read the fine print on your Startup’s SAFE Note & Convertible Debt Documents because if the investment is characterized as Unsecured Debt then it impacts the Lender’s underwriting of a venture debt loan.
The reason why Lenders want to know if the SAFE is debt or not is that when a Lender does not have a lien on Intellectual Property, they have to share the proceeds of the IP with unsecured creditors. This is a doomsday scenario meaning the company was not able to raise money and the Lenders are selling the assets for capital recovery. But it’s something Banks & Venture Debt firms will take into consideration when underwriting the deal.
There is no point in withholding this document in the process because the Lenders need it for their underwriting and the SAFE Note or Convertible Debt is already in place. No point in hiding the ball. :)
Kruze Consulting is a leading accounting firm working with seed and venture funded Delaware C-Corps. Funded startups choose Kruze Consulting’s team of CPAs, bookkeepers, CFOs, former IRS tax auditors, and venture experts. In addition to running the books, Kruze does tax, finance, and HR. Contact Kruze today!
Recent questions
Top viewed questions
- What happens if the IRS audits me and I do not have the receipt for an expense (assuming it was a legitimate expense)?
- How should convertible note financing be handled on the balance sheet?
- For startups incorporating in Delaware, what firms are good registered agents to use?
- How do startups account for equity and fundraising on the Balance Sheet?
- What does a US based company need to do to comply with IRS regulations in paying foreign contractors?
