I started raising money through loan notes and bonds in 2006, in the City of London. I spent about ten years based in Canary Wharf, and most of my career since has been on the debt side: structuring loan notes, refinancing companies and, three times, taking companies public through LimeTree IPO. If those twenty years taught me one thing, it is that debt is a relationship built almost entirely on trust.
That sounds obvious. It is not how many founders approach it.
Equity investors buy a story. Lenders buy a promise.
An equity investor is betting on what the business could become. They accept that plans change. A loan note holder is in a different position. They have agreed to a fixed set of terms: a coupon, a payment date, a repayment date. Their upside is capped. What they are really buying is your promise to do exactly what the document says.
What I learned is that this changes everything about how you should behave once the money is in. With equity, a good update can carry a difficult quarter. With debt, the only update that really counts is the payment arriving on time.
Trust is built on small, boring things
The pattern I saw again and again was that the companies investors trusted most were not always the fastest growing. They were the ones that did the dull things well:
- Coupons paid on the due date, every time, without a reminder.
- Statements and updates sent when promised, in the same format each time.
- Questions answered within days, not weeks.
- Bad news shared early, with a plan attached.
None of that needs a big team or a big budget. It needs someone in the business who owns the investor relationship and treats each date as fixed. If you want a structure for it, our piece on investor reporting after the raise sets one out.
Investors forgive a difficult year far more readily than they forgive a surprise.
Silence costs more than bad news
When a business hits trouble, the instinct is to go quiet until there is something positive to say. In my experience, that is the single most expensive mistake a debt issuer can make. Investors do not hear silence as neutral. They fill it with the worst explanation available.
The companies that came through difficult periods with their investors still on side were the ones that picked up the phone first. They explained what had happened, what they were doing about it and when the next update would come. Then they gave that update when they said they would.
Plan the end on day one
A loan note has a maturity date, and it arrives faster than anyone expects. Some of the hardest conversations I have seen came from businesses that treated repayment as a problem for later. By the time later arrived, the options had narrowed.
Much of my work has been helping companies deal with that end point: refinancing, restructuring, or listing to clear debt. Those routes work best when they are planned years ahead, not months. Trust built along the way is what makes them possible. Investors who have been paid on time and kept informed are far more open to rolling over, extending or converting.
What I tell founders now
If you are considering loan notes, I would ask you three questions before anything else:
- Who in your business will own every payment date and every update?
- What will you tell investors, and when, if a quarter goes badly?
- How do you expect to repay the principal, and what is your fallback if that route closes?
If you can answer those clearly, you are thinking like a borrower that investors will back again. Trust in debt is not built by the pitch. It is built on the coupon date, and on every date after that.
This article is general information, not financial, legal or tax advice. If you are planning a raise, talk to BDM Capital.
Frequently asked questions
Because the holder is lending money against a promise and a set of documents, often without the protections that come with listed securities. The structure and transparency of the note are what make the promise believable.
Independent security trustees, escrow for subscriptions, clear and complete documentation, regular reporting and prompt disclosure of anything that goes wrong.
Late or missing interest payments without explanation, reporting that stops when news is bad, changes to terms without consent, and security that turns out to be worth less than described.
