Convertible debt

Convertible debt is like a special type of loan that can turn into ownership of a company. Imagine you want to lend your friend some money to start a lemonade stand. You tell your friend that you want the money back, but you also want to be able to turn your loan into a small ownership stake in the lemonade stand if things go well.

When your friend agrees to this, you've just created a convertible loan. It's a loan that can "convert" into ownership.

In the world of business and investing, companies might issue convertible debt to investors who want to lend them money. This is a way for companies to raise money for their business without giving up ownership right away.

The investor who lends the money is called a "debtholder." They get a loan agreement that says the company will pay them back the loan amount plus interest, just like any other loan. But if the company does well, the debtholder might be able to "convert" their loan into ownership of the company.

Basically, the debtholder gets to choose whether they want to keep the loan agreement or turn it into part ownership of the company.

It's kind of like you lending your friend money to start a lemonade stand, but instead of taking the lemonade stand from them, you get to choose whether you want to keep getting paid back with interest or become a co-owner of the stand.

Convertible debt is a way for companies to raise money without giving up too much ownership right away, and for investors to potentially get more than just their money back if the company does well.