Naturally, most founders want to keep as much ownership of the company as possible and if the company expects to be profitable in the near future and the profits can be used to pay off the loan then a Convertible Note will afford you the option to do that.
Here's how it works (it's super simple and familiar to most):
- Raise funding needed for growth using a convertible note
- Become profitable and accumulate enough reserves to pay off the loan
- Pay off the loan plus interest at maturity
Seem familiar? - that's how traditional loans work. It's easier said than done so make sure you have a very strong financial model and have prepared your financial projections and plans. Run the numbers on this to see if it will work.
However, consider sharing this desire with the investor in case they strongly desire an equity stake. For most investors, the standard 8% to 10% interest rate doesn't compensate them for the risk of investing in a startup but if they're fine with just getting the interest, then this could be a great situation for everyone. Without this conversation, you may end up spoiling relationships.
Also, if you take this strategy make sure the business will be able to sustain its own organic growth without the capital. Otherwise you may end up having to raise again.