![]() ![]() Balloon loans are useful if your company has high expenses and you’re confident you can raise a substantial next round of funding. This is where you pay interest only or nothing until the loan matures, at which point you pay the remaining balance all at once. ![]() You can negotiate a balloon loan structure with your lender in some situations. You’ll pay the principal and interest payments, but there is no set standard for interest rates. The price of financing venture debt is higher than a loan, as there is more risk.The amount of venture debt received is generally between 25 - 50% of the amount previously raised through a VC company.This amount of time can provide you with enough runway to reach your subsequent funding round. The length of the loan term can vary from 24 months to 48 months, with an industry average of 36 months.Here are the most common venture debt terms: The caveat is if you also have a bank loan, which means the bank is the first on the stack and you would pay them first. Venture debt lenders are the senior secured lenders in a company’s capital stack - meaning you would repay them first because they’re at the top of the stack. However, they are typically small at 2% of the company’s valuation, much less than venture capital equity agreements. ![]() Warrants are viewed as a deal sweetener for the lender. In these cases, the lender can buy equity, which will be more valuable when the company reaches their subsequent funding round. Warrants offer downside protection and upside potential for the lender.įor example, let's say you don't hit your goal of raising another round or can’t repay your debt. This is where the lender has the right to purchase equity in a company at a later date. Warrants may also come with a venture debt agreement. Some companies can negotiate venture debt without financial covenants if they are well-capitalised or high-growth businesses. For the lender to disperse the next $1 million, perhaps you have to hit a specific revenue or growth target for the remaining $1 million. You might be approved for $3 million but have only $1 million dispersed to you initially. Covenants are a set of agreements made between the borrower and lender that outline the criteria or behaviour that the lender must fulfil for the loan to progress.įor example, the borrower might not always be given the full amount of the debt all at once. It’s common for venture debt providers to put certain financial covenants in place to incentivise repayment. Other options may be more beneficial than venture debt.You can use venture debt for growth, to increase your company's cash runway and as a bridge between equity rounds.It’s common for entrepreneurs to receive help securing venture debt from a known lending partner of their VC backer.While venture debt is more flexible than traditional financing, it can also come with restrictions like covenants and warrants.Venture debt financing is a form of semi-dilutive capital for VC-backed companies, usually in their early or growth stages.When does it make sense to use an alternative to venture debt?.When does it make sense to use venture debt?.We interviewed Jeeves’ in-house financial experts to help you make an informed decision on venture debt and other options. What is venture debt and can it really help you scale?.How to access capital quickly to bridge your VC rounds or break even when both equity financing and debt are time-consuming and restrictive?.How to finance growth when you don’t have enough revenue or assets to access debt and you want to avoid dilution through venture capital?.What’s the best financial option for your company’s growth stage?.If you’re finding barriers to getting the extra financial help you need to scale (especially if you're a new company without credit history), you're probably wondering:
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