Convertible loans in Belgium: fast cash, delayed drama?

Let’s face it: no startup founder dreams of negotiating a pre-money valuation with barely six months of runway left.

Yet, the clock ticks, the burn rate doesn’t lie, and raising capital becomes inevitable. That’s where convertible loans come in : the Swiss army knife of early-stage fundraising in Belgium. Useful from the very first rounds, but also as a bridge between two rounds, it offers a real breath of strategic fresh air.

1. The promise: cash now, dilution later

Convertible loans are debt instruments that convert into equity during a future financing round. They postpone the tricky question of valuation to a later stage, when the company hopefully has more traction (and leverage). In Belgium, they’ve quietly become a go-to structure for startups looking to move fast without opening a full equity round.

But it’s not just about speed, it’s about pragmatism. Convertible loans are:

• Founder-friendly: No need to argue over cap tables too early.
• Investor-incentivized: Discounts, valuation cap and interest sweeten the deal.
• Flexible: You can raise progressively, from multiple backers.

2. The Belgian flavour: less Silicon Valley, more realism

Belgium hasn’t replicated the American craze for convertibles, with its famous SAFEs (Simple Agreement for Future Equity), nor the French vogue for BSA-AIRs (“Bon de Souscription d’Actions par Accord d’Investissement Rapide”) but local actors have added their own spin. Public players like Finance&invest.brussels, Trividend, Crédal and some VCs have baked convertibles into their playbooks, especially for impact or tech-for-good startups.

• Conversion triggered at the next round or at maturity

The legal framework? Better defined than founders assume. The Companies and Associations Code provides for convertible bonds directly, article 5:122 for the SRL/BV and article 7:180 for the SA/NV. What is left to drafting is the commercial layer: discount, valuation cap, maturity, and what happens if no round arrives.

Take “RideBrussels”, a fictitious startup digitizing traffic flows for mid-size cities. They had grant money, early pilots, and decent buzz, but raising a full seed round was taking too long. So they closed a €600k convertible loan round with a mix of angels and finance&invest.brussels. Terms? 25% discount, 7% annual interest, 18-month maturity.

When the Series A finally came (at a solid €8M pre-money), the convertibles converted at a €6M valuation. Founders kept more equity, early backers got rewarded, and everyone left the table happy. That’s the upside.

3. Formalities: the real work begins when the loan converts

Let’s not kid ourselves, the loan-to-equity moment isn’t just a quick email and a cap table update. In Belgium, the actual conversion process comes with paperwork, protocols, and yes, a notary. Here’s what typically needs to happen:

• A notarial deed is required to formalise the capital increase. No notary, no shares.
• The board needs to issue a detailed report justifying the transaction and explaining its benefit to the company and its shareholders.
• If the loan converts as a contribution in kind rather than as a validly issued convertible bond, a statutory auditor or an appointed company auditor has to report on the valuation, under article 5:133 for the SRL/BV and article 7:197 for the SA/NV.
• And don’t forget: newly-minted shareholders often have to adhere to the existing shareholders’ agreement, or trigger a revision of the pact.

In short: conversion isn’t an afterthought. It’s a legal milestone that needs planning, alignment and the right advisors.

But beware the fine print

Not all convertibles are created equal. Some founders get caught in:

• Valuation cap traps and new investors might be reluctant to invest at a higher valuation than the one applied to convertibles.
• Maturity mismatches: if no round happens, what then?
• Over-stacking: stacking too many convertibles can lead to cap table chaos.

4. Taxation: clear-cut? Not exactly.

Convertible loans might be structurally elegant, but tax-wise, they’re a bit of a maze. In Belgium, the fiscal treatment hinges on two distinct phases: before conversion, and at the moment the loan turns into equity.

A. During the loan phase (pre-conversion)

For the startup, interest payments can be tax-deductible, provided the rate is market-based, the loan structure respects thin capitalisation rules and it’s not a sweetheart deal. But here’s the catch: those interests usually trigger a 30% withholding tax (“précompte mobilier / roerende voorheffing”), unless an exemption applies.

On the lender’s side, Belgian individuals pay that same 30% withholding tax. Corporate investors? It depends. Interest might be taxed as ordinary income, or exempted between associated EU companies under the interest and royalties Directive 2003/49/EC, which is the directive that covers interest. The Parent-Subsidiary Directive deals with dividends and does not apply here.

B. At conversion

Now the good news: converting the loan into shares isn’t a taxable event. There’s no capital gain triggered, even if the shares received are worth more than the nominal loan amount. The fiscal value of the new shares? It usually matches the original loan amount. If unpaid interest is converted too, it may have already been taxed or might need special treatment depending on the case.

For the startup, the conversion is treated as a capital increase. No tax due. Just a stronger balance sheet.

Final thoughts: smart tool, not magic bullet

Convertible loans won’t solve bad unit economics or fix a broken product. But for startups with momentum, a clear vision, and the right advisors, they offer speed, simplicity and strategic breathing room.

And in the Belgian jungle of public funds, cautious angels and modest exits, that might be exactly what you need.

At dups, we support founders in their fundraising strategy from A to Z, combining the expertise of our in-house financial experts and lawyers. We act as a true sparring partner to help you achieve your objectives, on the right terms.

Are you thinking of using a convertible loan to accelerate a fundraising? Or on the contrary, you’ve already stacked up three and want to structure the entry of a lead investor properly? Contact us now!