Debt Funding for Business: Banks, Venture Debt, Non-Bank and Platform-Based Lenders
Different Types of Funding for Your Business: A Practical Guide for Founders and SMEs — Part 5
Not all growth funding requires giving up ownership.
Debt funding allows you to access capital while retaining equity, but it must be repaid and places pressure on cash flow.
Debt is best suited to businesses with predictable and stable revenue.
Venture Debt
Common structures include:
- Term loans
- Revolving credit facilities
- Revenue-based loans
Typically provided by:
- Family offices
- Angel investors
- Specialist venture debt funds
Often used to:
- Extend runway
- Bridge funding rounds
- Support short-term growth initiatives
Advantages of Venture Debt
- Can be a stop gap between equity rounds
- Less equity dilution
- Interest is tax deductible
- Often fewer control rights than VC
- May not require personal guarantees
Disadvantages of Venture Debt
- Requires revenue to service debt
- Higher interest rates
- Secured over business assets
- Must be repaid regardless of performance
- May want a slice of the equity upside via a warrant (bit like an option)
Click here to learn more about Venture Debt
Bank and Non-Bank Lending
Banks provide:
- Overdrafts
- Equipment and asset finance
- Invoice finance
- Business loans
Non-bank lenders offer similar products but with typically:
- Faster approval times
- More flexible credit assessment
- Higher pricing
Debt funding is best suited to businesses with predictable and stable cash flow.
Click here to learn more about Bank and Non Bank Lending
FYI Westpac currently do offer start up loans, learn more here
Platform-Based Loans
Many digital platforms (such as Shopify, PayPal, Stripe) now offer funding to businesses using their systems, with repayments linked to sales.
Pros
• Very fast approval
• Minimal paperwork
• Repayments flex with revenue
Cons
• Higher effective cost
• Limited to businesses on those platforms
Want to learn more about platform based loans, click here.
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Want a confidential discussion on your business situation, help with your grant application or to learn more about my Outsourced CFO Services, simply email me at wayne@aRealCFO.com.au or call me on 0412 227 052
