Convertible Notes and Participating Loans in Spain
Bridge your startup financing with the right instrument for a Spanish SL: convertible notes, participating loans and SAFE-like structures adapted to Spain.
Let's talk about your financingFund your startup now without fixing a valuation yet
At an early stage, putting a number on your company is hard: there is not enough track record, metrics shift month to month, and a valuation fixed too early can work against you or against the investor. That is why many startups look for instruments that let them raise money now and settle the valuation later, once there is more information to work with.
Convertible notes and participating loans are two common instruments for this situation, though they follow different logic: one is designed to convert into equity, the other to finance the company without that goal. Choosing the wrong one, or mixing clauses from both without judgment, is what complicates the next round later on.
Our work is identifying which instrument fits your specific operation, negotiating its clauses, and getting it signed without blind spots that come back to bite you at the next round.
Convertible notes: debt that turns into equity
A convertible note (or convertible loan) is, formally, a loan: the investor puts in money now, and instead of you repaying it with interest, that amount converts into shares when a later funding round, or another pre-agreed event, takes place.
How it works in a Spanish SL
The investor advances an amount. That amount is not repaid in cash: it converts into shares when the next funding round arrives (or, if agreed, at a maturity date or another event defined in the contract). Until that point, there is no fixed valuation of the company.
The clauses that decide your dilution
The valuation cap and the discount applied against the next round's valuation are the clauses that really determine how much you will be diluted. The applicable interest, and what happens if no round arrives before maturity, matter too. These are negotiated clauses, not fixed market terms.
Participating loans: financing that may count as net equity for certain purposes
The Spanish participating loan ("préstamo participativo") is a distinct instrument, with its own legal regime. It is not designed to convert into shares: it is debt, with a return that can include a variable interest rate linked to the business's performance, alongside a fixed component.
What makes it different
Unlike a convertible note, there is no conversion into equity built in as a natural mechanism of the contract. It is, legally, a loan — but its special legal regime can make it count as net equity for certain corporate-law purposes, which is useful for strengthening the balance sheet without diluting current shareholders.
ENISA and public funding
ENISA typically channels its funding to startups through participating loans. We do not go into amounts, terms or specific requirements here, since these depend on the call for applications in force at any given time — what we do is review how that loan fits with your financial structure, your existing agreements and the rest of your financing.
Convertible note, participating loan or SAFE: which fits your round?
There is no single answer: it depends on who is investing, for what purpose, and at what stage your startup is. As general orientation — not a fixed rule: if the investor wants to enter your capital at the next round, a convertible note is usually the natural vehicle. If the funding comes from a public body or you want to strengthen your financial structure without giving up equity, a participating loan fits better. A SAFE tends to show up mainly when foreign investors, used to that format, are involved.
What matters is not choosing the instrument out of habit or because "it's what everyone uses," but because of how it fits your cap table, your existing agreements and your plans for the next round.
What if your investor proposes a SAFE?
This is common when foreign investors are involved, especially from the US. The SAFE (Simple Agreement for Future Equity) is a simple instrument with no interest or maturity date, but it was designed around US law and its own corporate concepts.
A SAFE drafted in its original US form should not be copied as-is for a Spanish SL: concepts such as share "series" or certain conversion mechanics do not have an automatic equivalent under Spanish company law. If an investor hands you a SAFE, we review and adapt it before you sign, not after.
Errors we fix before they cost you equity
Signing a convertible note with no valuation cap, leaving your dilution entirely open to whatever the next round decides.
Stacking several convertible notes with different caps without coordinating them, creating conversion conflicts that are hard to resolve once the round arrives.
Copying an English-language SAFE and signing it as-is, without adapting it to a Spanish SL.
Accepting a participating loan without reviewing how it fits your existing shareholders' agreement or other financing instruments already signed.
Not putting in writing what happens if no round arrives before the note's maturity date.
How we work on your financing
Diagnosis and instrument choice
We analyse your situation, who is investing and for what purpose, and tell you which instrument fits better: a convertible note, a participating loan, or both combined if your operation calls for it.
Drafting, review and negotiation
We draft the document from scratch or review the one proposed by the investor (including an English-language SAFE), and negotiate the clauses that matter most for your future dilution.
Closing and cap-table fit
We close the document ready to sign and check that it fits your cap table and shareholders' agreement, so no surprises show up when conversion or the next round arrives.
Frequently asked questions
Convertible note, participating loan or SAFE: which one is best for me?
There is no single answer: it depends on who is investing, for what purpose and at what stage. As general orientation, not a fixed rule: if a private investor wants to enter your capital at a later round, a convertible note usually fits better. If the funding comes from a public body or you want to strengthen your financial structure without giving up equity, a participating loan is the usual route. A SAFE tends to appear when foreign investors, used to that format, are involved. We review your specific case before recommending anything.
What is the real difference between a convertible note and a participating loan?
A convertible note is designed to turn into equity at a future round: it defers the valuation, it does not avoid it. A participating loan is a different financing instrument, with its own legal regime, which may count as net equity for certain corporate-law purposes, but it is not designed to convert into equity.
Can I negotiate the terms of an ENISA participating loan?
There is limited room: a large part of the terms are set by ENISA's current call for applications. Where we do add value is reviewing how that loan fits with your cap table, your existing agreements and the rest of your financing, so it does not create friction later on.
Does a convertible note dilute me immediately, or only on conversion?
Dilution happens at the moment of conversion, not before. But the clauses you negotiate now — discount, valuation cap, interest — determine how much dilution you will take on at that point. That is why they are worth reviewing carefully before signing, not once you are already closing the next round.
I have an English-language SAFE from a foreign investor. Can I just sign it as is?
Not without review. A SAFE drafted for US law starts from concepts — share series, conversion mechanics — that do not automatically fit a Spanish SL. It can be used as a starting point, but it needs adapting to your corporate form and to Spanish company law.
Can you guarantee we will get funded or find an investor?
No. We do not raise your round or promise funding, an investor, or approval of an ENISA loan. What we do is help you choose the right instrument, document it properly and make sure it fits your cap table and future round.
How much does it cost to draft or review this?
It depends on the complexity of the operation and whether we start from a document already drafted by the investor or from scratch. We give a fixed quote once we understand your operation, with no surprises afterwards.
Let's talk about your financing
A convertible note, a participating loan, or a SAFE an investor has proposed: we help you choose, draft or review it, and get it ready to sign.
Got a SAFE or a note on the table? We'll review it before you sign.
Book a callRelated services
Startup Lawyer in Spain
Your English-speaking legal team for operating in Spain.
Investment Rounds & Private Equity
Term sheet, due diligence and closing your funding round.
Shareholders' Agreements
The agreement that governs your company once the note converts.
Company Formation in Spain: Full Guide
The complete guide for non-resident founders and investors.
Startup Tax Spain
The tax side of the company and of the investor in your operation.
Startup Legal Advisory
Ongoing legal support across every stage.
Phantom Shares & Stock Options
Incentivise your team alongside your financing instrument.
Legal Due Diligence Spain
Make sure your financing instrument is properly documented before review.
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