Exploring venture debt: benefits, risks, and tradeoffs

Everybody knows what venture capital is, but many entrepreneurs are fuzzier about its loan-based cousin, venture debt. Venture debt has exploded in popularity in the last few years. Tomasz Tunguz notes that it’s 16x as popular as it was only six years ago. For some startups, venture debt can be a solid option to boost their cash flow and supplement their VC round with very little dilution to their remaining equity. But like anything, there are trade-offs and you need to educate yourself on the basics.

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5 reasons to choose debt over equity financing

When CEOs of early-stage companies think about growth capital, they rarely think of debt financing. Venture capital has a larger mindshare, and a lot of founders are anxious about taking money that has an interest rate or repayment cap attached.

They shouldn’t be. Financing your healthy growing company with debt isn’t the same thing as maxing out your credit cards to fund your product development. You have paying customers, maybe even a few enterprises. You have revenue. You (hopefully) have an accounting function. This infrastructure makes debt easy to account for: you know your repayment obligations ahead of time and you can plan for them.

In addition, debt financing may offer its own hidden benefits. Here are five reasons not to be skittish about financing your company with debt.

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Everything you need to know about the SBA’s 7(a) loan

For more than sixty years, the Small Business Administration has helped American businesses grow. The SBA was slow to adopt programs and policies that could help tech entrepreneurs, but now they fund far more than just mainstreet mom-and-pops—there are several financing options that a yount tech company might find useful.

The most common of these is the standard 7(a) SBA loan. Let’s review how it works and break down the details.

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A sustainable way forward for online lending

In mid-April, the Federal Reserve Bank of New York released findings from its 2016 small business credit survey, which asked more than 10,000 small business across the country their opinions on lending institutions. One of the big takeaways? Small businesses really don’t like online lenders.

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Funding checklist: Required documents for securing a traditional SMB bank loan

During my commercial banking days, I would often see entrepreneurs being rejected for a loan because they were unprepared for the underwriting process. Whether you wanted to secure a $100K line of credit or a $2M term loan, if you want it from a traditional bank, you'll have to provide an extensive list of documents in order to go through their underwriting process. It's tedious and time-consuming, but it’s worth it if you can qualify for one. Traditional commercial and SMB loans are definitely the cheapest capital in the market—APRs run between 4% and 8%, typically.

To help you be more successful in securing a loan, We’ve outlined the most common documents banks require. Treat this as your checklist and start preparing for them if you are thinking about getting a SMB loan from the bank.

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Four alternative loan categories for SMBs

For many small and midsize businesses, obtaining traditional bank financing is more difficult than you might think. Old-school banking's inefficiencies and outdated underwriting processes make it almost as costly for banks to make loans under $250k as it is to make loans of $1 million, and banks are facing increasingly strict capital ratios. The result is that many banks aren’t interested in making smaller loans to SMBs because the economics don’t work.

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Five debt funding options for your SaaS company

For founders, SaaS means opportunity. The SaaS market is exploding. Analysts project that the global SaaS enterprise application market will grow from a $22.6 billion market in 2013 to $50.8 billion in 2018.

For investors, SaaS means security. One of the most appealing features of SaaS startups is their sticky revenue streams, which make them less risky investments. SaaS companies often start generating revenue and profitability much earlier compared to startups in other tech categories. And thanks to their software focus, many are able to bootstrap for a long time to gain early traction.

However, bootstrapping will only get you so far. At some point, putting off fundraising means limiting your growth. So how can SaaS businesses take their companies to the next level? What funding options are out there?Read more


Beyond Sand Hill Road: can debt be growth capital?

Sand Hill Road in Menlo Park, California is the epicenter of VC. While many tech founders dream of scoring a deal with one of the prominent VC firms that make their home on Sand Hill Road, the reality is that less than 1% of U.S. based startups receive venture money every year. Another reality: many entrepreneurs never consider the less glamorous but more accessible (and cheaper) startup financing option: debt.

Here are some insider tips from Molly Otter, Lighter Capital's Chief Investment Officer, and David Ehrenberg, CEO of Early Growth Financial Services, to help you understand the alternatives to Sand Hill Road.

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Three core values we believe in SMB online lending

We are proud to announce that Lighter Capital will be a sponsor of this year’s LendIt Conference, which is the world’s largest annual gathering of the online lending community. Our team will be there from April 13-15 and I will be participating in a panel discussing innovations in small business lending.

The LendIt conference gives us a chance to share our vision on how to take online lending to the next level. While today there are more funding options for entrepreneurs to choose from, few online lending models support a healthy startup’s sustainable growth.

Here are three core values that Lighter Capital believes in helping to drive the online lending industry forward. We call it Capital-as-a Service, a way of providing capital that better serves the entrepreneurs.

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Not quite ready for a RevenueLoan? Here are some financing options to tide you over

At Lighter Capital, we like to fund as many companies as possible. But not all businesses are at the right stage for our revenue-based financing model. If you don’t yet have monthly revenues of at least $15K or gross margins over 50%, where can you turn for financing?

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