Any cumulative arrears of dividends are payable 3. Not usually attractive as ordinary or loan stock. A fixed percentage of interest is paid per year until the option has been exercised - this will give the company time, before its equity is enlarged to build up profitability with the finance it has raised. Attractive to investors because of the option to convert to equity. Lower interest rates than ordinary loan stock.
Interest is tax deductible.
Lower cost of capital. Interest has to be paid whether profit is made or not. Security may be required. Transfer of control if converted to ordinary shares. A financial risk.