What Is a Convertible Loan Note? Trying to Understand How It Works

I keep coming across the term convertible loan note while researching early stage fundraising and wanted to actually understand what is a convertible loan note before assuming it works exactly like a normal loan. Here is what I have pieced together so far, would appreciate anyone correcting me or adding context.

From what I understand, a convertible loan note is technically a form of debt, it accrues interest and has a maturity date, but instead of simply being repaid in cash, it is designed to convert into equity at a later point, usually at the next priced funding round. If that priced round does not happen before the maturity date, the company may need to repay the loan in cash instead, which is one of the key risks founders seem to weigh when choosing this over other instruments. Because it starts out as debt, it sits differently on the balance sheet compared to something like an advance subscription agreement, and can affect insolvency risk if the company is ever unable to repay or convert it.

Convertible loan notes usually come with a valuation cap and sometimes a discount rate, both of which determine the price at which the debt converts into shares compared to what new investors pay in the priced round, effectively rewarding early investors for taking on risk before the company had a formal valuation. I have read that convertible loan notes tend to be more common in the UK compared to SAFEs specifically, partly because UK investors and lawyers are more familiar with debt instruments and how they interact with UK company law, tax relief schemes like SEIS and EIS, and existing shareholder agreements.

What I am still trying to understand is how founders should think about the maturity date in practice, whether it realistically ever gets enforced as actual repayment, or whether it almost always ends up getting extended or converting anyway once a new round eventually happens.

Has anyone here actually raised using a convertible loan note in the UK? Curious what terms you agreed to, whether the maturity date or valuation cap became a real point of negotiation, and anything you wish you had understood better going in.

Found a fairly clear explanation of this on Entrepreneur Plus UK while I was reading around the topic, helped me understand the founder side of it a bit better.