Venture debt

What is venture debt?

It is a term loan from a bank or specialist fund to companies backed by venture investors. The lender assumes the investors will keep funding the company and underwrites the quality of those investors, the cash on hand and the plan to the next round. Repayment comes from that round or from revenue.

Alongside interest, the lender takes warrants: the right to buy shares later at the last round's price, worth a small percentage of the loan. It is usually drawn soon after an equity round, when the company is strongest, and sits between revenue based financing, which needs revenue but not investors, and the next round.

Who qualifies for venture debt?

Lenders want a priced round from recognized institutional investors in the last six to twelve months, enough cash to cover at least twelve months of burn before the loan, and either fast growing revenue or a milestone that will unlock the next round. Founder credit and collateral matter little; the lender takes a lien on company assets and often on intellectual property.

• Declined most often: companies funded only by angels or friends, runway under nine months, flat or falling revenue, and investors who will not confirm their support.
• Software and tech companies are the core market; see financing for software and tech startups for options at each stage.

What does venture debt really cost?

A typical example: you take a $5 million venture loan at 12% with 12 months interest only, then 24 months of amortization. Interest is $50,000 a month in year one, then payments of about $235,000 a month, for roughly $1.25 million of total interest. A 1% closing fee adds $50,000 and a final payment fee of 3% to 5% adds $150,000 to $250,000.

Then the warrants: coverage of 5% to 10% means the lender can buy $250,000 to $500,000 of shares at the last round price, worth far more if the company succeeds. All in, the cost is often 15% to 20% a year, still well below the dilution of raising $5 million as equity. Read how to read a term sheet.

How do you qualify, and what documents do you need?

Expect to provide your investor deck, a financial model with monthly projections for two to three years, historical financials, your cap table, the closing documents from your last round, bank statements, customer and revenue data, and references from your lead investors. Lenders will speak with your board.

Our document checklist covers the basics, but the model is the heart of the file. Lenders test what happens if you miss the plan by 30%: whether you can still service the loan and whether investors would still fund. A model that shows only the upside is a decline.

How long does venture debt take?

Typically four to eight weeks from first conversation to funding, including a term sheet, due diligence, investor reference calls and legal documentation. Banks that hold your deposits can move faster; specialist funds take longer and write larger checks.

The best time to raise venture debt is right after an equity round closes, when the lender's confidence is highest and you do not need the money yet. Companies that approach lenders with three months of runway get worse terms or none. See how long business loans take.

When should you choose something else?

Choose revenue based financing if you have recurring revenue but no institutional investors, because venture lenders will not look at you. Choose a line of credit or asset based lending once you are profitable or have receivables; both are cheaper and carry no warrants.

Avoid venture debt if your next round is uncertain. Debt is repaid on schedule whether or not the round happens, covenants can let the lender demand repayment early, and a startup that burns through its loan without hitting milestones is worse off than one that never borrowed.

How do you apply for venture debt?

Apply once on this site with your deck, model and cap table, and your application reaches venture lenders and banks that work at your stage and sector, alongside revenue based and asset based options so you can compare the cost of each. It is free for your business, and we are paid the same whichever lender you choose. You can also ask your AI assistant to apply through our MCP server; it reads your financials, fills the application and submits it.