LendSpark finances $16.2M construction loan for a single-family residential project

What is Venture Debt?

April 3, 2023

Venture Debt or Venture lending is a form of debt financing typically provided to venture backed companies to fund working capital or equipment purchases.  This type of debt is usually provided by non-bank lenders and offers high growth companies the needed capital necessary for their rapidly expanding operations.  Venture debt can also be offered to non-venture backed companies, whether they are privately held or publicly traded.  

How does this debt help growing companies?

1. Working Capital when a company may not have adequate collateral coverage.  Traditional banks want collateral, either accounts receivables, equipment, and/or real estate.  High growth companies may not have the necessary collateral for banks to feel comfortable so non-bank lenders, or alternative financing companies, can step in and offer the necessary working capital.  This is a higher risk lending profile which non-bank lenders like LendSpark are willing to take.  

2. Funding when a company may not have the history or time in business.  Newer businesses have a harder time obtaining lines of credit and traditional bank loans.  Without history to demonstrate performance and reinforce the management objectives to banks, newer companies turn to alternative lenders for the necessary funding.  This funding can be for the purchase of equipment or the working capital necessary to hire new staff.  

3. Funding without diluting owner equity.  Venture capital, the majority of private equity funds, and mezzanine financing require equity in order for them to offer financing.  Venture debt allows non-bank lenders the opportunity to finance the company without taking equity, thereby allowing the owners to maintain their equity levels and control.  

Venture debt is offered at higher rates than traditional banks due to the higher risk profiles assumed, such as newer businesses, less or no collateral and the need for growth capital.  That being said, venture debt offers business owners the ability to obtain funding without giving up equity and ownership control.

If you are fast growing business, or have recently obtained new business and need either working capital, equipment financing, or need to leverage accounts receivables, venture debt is another source available with great benefits to business owners.  

Contact us today to learn more!