While largely in line with Impact-Linked Loans, the main distinguishing feature of Impact-Linked Convertible Loans is that upon reaching of a pre-determined event (e.g. qualified equity round) the loan is (partially or fully) converted into equity. Terms of the loan are similarly tied to borrower’s achievement of pre-defined social outcomes, with the same concept of “better terms for better impact” applying. As such, the discount rate for instance, depends on borrower’s impact performance up until the triggering event. The higher the impact achieved by the impact enterprise, the lower the discount. Same can hold for the interest rate due upon conversion. In specific scenarios and contexts, achieving very high social outcomes can possibly even translate into negative interest rate, i.e. debt forgiveness. Overall, providers of ImpactLinked (Convertible) Loans are primarily motivated by impact (catalytic funders/ impact-first investors), as they are expected to take lower returns due to the more favourable terms for the enterprise. However, there is the option for public or philanthropic funders to provide investors with a compensation to make up for their lower return (blended finance).