We've done this a little differently than what I've been reading about in that we actually placed a valuation on the company (based pretty much on the work that has been done and the effort it would take to duplicate the functionality.)
Our investor is very laid back and we are writing/driving the terms.
I specified a loan term of 18 months at 4% annual interest rate, no payments due until the end of the term. Investor may convert to stock at any time until 30 days after full repayment(including interest). Company can repay early.
Is that interest rate and term reasonable? There is a high likelihood of repayment and high likelihood of profitability, however the full loan amount is at risk with no collateral/security.
If we cannot repay the loan within that time period we will have folded long before then.