A convertible loan agreement (CLA) is a debt instrument — common in Europe and frequently used for Turkish startups — that lends money to a company and converts into shares at the next qualifying round, typically with a discount and/or a valuation cap. Until conversion it is a loan that may bear interest.
The CLA defers the valuation debate to the priced round while giving the startup fast capital. In Türkiye, convertible structures must be reconciled with Turkish Commercial Code rules on capital increases and the legal treatment of the loan, which is why bespoke drafting is important.
The convertible loan agreement in practice
A convertible loan agreement (CLA) is the European cousin of the US convertible note: a loan that is designed to convert into equity at a future financing rather than be repaid in cash. Its commercial core is the same set of levers — a valuation cap, a discount, an interest rate that usually rolls into the conversion, and a maturity date. The legal care lies in the detail: what counts as a “qualified financing” that triggers conversion, what happens at maturity if no round occurs, the ranking of the loan against other creditors, and the conversion mechanics. Because it is genuine debt until it converts, a CLA must be drafted with both contract and (in Türkiye) Code of Obligations principles in mind, not treated as a mere placeholder for equity.
Building a CLA under Turkish law
The convertible loan agreement is Turkish practice’s closest native relative of the SAFE: money lends today, and at maturity or a qualified round the receivable converts to shares at an agreed discount/cap formula. The structure lives on three layers: the debt layer (interest, maturity, default), the conversion layer (triggers, price formula, mandatory versus optional) and the corporate layer — conversion is, mechanically, participation in a capital increase with set-off of the receivable, so pre-emptive-rights handling, general-assembly steps and registry filings must be mapped before signature. Add the tax edges (withholding on interest, stamp-tax position) and FX/reporting steps for foreign lenders, and the “simple bridge” reveals itself as a full transaction document — its simplicity should come from mechanics resolved in advance.
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