State Bank of Pakistan(SBP) is coming up with an advanced type of loan strategy to full fill the specific needs of some startup ventures keeping an eye on the issues they are facing in generating capital in the form of Convertible Debts from abroad.
Moreover start ups and venture capital firms sustain that overseas investors propose to invest in their companies in the form of convertible debts(i.e. Loan Convertible into equity) instead of directly investing as equity while the current overseas exchange regulations remain impotent to provide this facility according to a working paper titled “Raising of convertible debt from abroad by startup companies” issued by the State Bank on Tuesday.
However, another hinderance that is leading to the funding issues of startup firms are scarcity of collateral or security. Overseas investors including equity funds and angel investors show interest in startups. Hence, they try to cover the risk through standby means like high return on loan, the SBP noted.
According to SBP “A company may raise funds from abroad in the form of convertible debt ie the lender shall have the option to convert the loan into equity of the borrowing company.”