You’ve had an idea, turned that idea into a business but now you need cash to grow your business. The banks have turned you away because you don’t have enough years of trading to meet their requirements and you’re not yet ready to part with shares of the business.
That is where Venture Debt comes in, it provides high growth scale-ups and access to much needed Funds.
What is Venture Debt?
Venture Debt also known as Venture Financing or Venture Lending is a type of fast, flexible funding aimed at high growth scale-ups that have a Venture Capital backing.
It enables businesses to get funding at an earlier stage of the business lifecycle with much larger amounts than a traditional bank loan would offer.
It offers young companies a way to get an influx of cash, without giving up ownership of their business assets or shares in exchange for funding.
Classed as high risk most lenders will turn down a start-up for traditional lending. This facility is aimed at start-ups with realistic and achievable growth plans, meaning lenders are aware of the potential risk.
To combat this the lenders, receive warrants on the company’s common equity as a part of the compensation for the high level of risk. The total value of the distributed warrants generally represents 5% to 20% of the principal amount of the loan.
How is Venture Debt structured?
Venture Debt is typically a short – medium-term loan lasting 3 to 4 years and is usually provided to start–ups that have completed several rounds of venture capital equity fund raising.
One way of determining the amount of debt a lender will offer is using the amount raised in the last round of equity financing.
Alternative methods can include Growth Capital, Accounts Receivable Financing and Equipment Financing.
We would always recommend speaking to independent commercial finance advisors, such as ABL, to make sure the facility is being structured in a way to suit your business and your needs.
Somethings to consider?
Before taking out any form of finance it's always important to consider all the facts and options available.
With Venture Debt there are certain requirements that lenders will look for such as:
· Does 50% or more of your revenue come from the UK?
· Do you have monthly recurring revenue of £2m+
· Is your business model proven – Established Customer Base, Functioning Product, B2B preferred (but not essential)
· Is the business equity-backed or privately owned?
· Is your business in a high growth sector?
Venture Debt is a great way of obtaining funds as it differs from other forms of credit. Helping businesses grow rapidly without giving any of their assets up, being quite popular with start-ups.
If you want to know more about Venture Debt, we are always happy to help, the ABL team is available on 01274 965356 or drop us an email
If you want to find out further information about this topic you can get in touch with Alex via email or call her on 07903 769 037 to talk through your options.