SpacDeskWorking Capital Loan
A loan from the SPAC sponsor (or its affiliates) to the SPAC to fund operating expenses during the target search period, typically convertible into warrants or repaid from trust proceeds at closing — not drawn from the trust itself.
Working capital loans are a routine feature of SPAC operations. Because substantially all IPO proceeds are locked in the trust and cannot be accessed for operating expenses, the SPAC relies on the private placement proceeds and, when those run out, loans from the sponsor to cover legal fees, accounting costs, SEC filing expenses, due diligence travel, and other administrative costs.
These loans are evidenced by promissory notes and are typically unsecured and non-interest-bearing. The key economic feature is the conversion option: most working capital notes can be converted into warrants at $1.00 to $1.50 per warrant at the sponsor's election upon closing of the business combination. If the SPAC liquidates, the loans are repaid from any assets outside the trust (which are often negligible), meaning the sponsor may not recover the full amount.
Working capital loan amounts are disclosed in the SPAC's quarterly filings (10-Q) and annual reports (10-K). Aggregate amounts range from $200,000 for small SPACs with short search periods to several million dollars for larger SPACs with extended timelines and complex deal negotiations.
For investors, working capital loans matter because of the dilution they create through warrant conversion. A $1.5 million working capital loan converting at $1.50 per warrant creates 1 million additional warrants — each exercisable into one share at $11.50. This dilution is on top of the public warrants, private placement warrants, and any other convertible instruments. SpacDesk includes working capital loan balances and conversion terms in the per-SPAC capital structure breakdown.
Data sourced from SEC EDGAR filings. Example SPACs are drawn from the SpacDesk universe and selected to illustrate this concept. Definitions reflect standard SPAC structures; individual deals may vary.