Venture Debt, a Funding Instrument with an Easy and Fast Process!

Startups certainly need financial support for market and product development. There are various ways that can be done to get financial support. One of them is to carry out a funding process or fundraising using a bud fund application.

What is Funding or Fundraising?

Fundraising is defined as the ‘providing of funds’. If viewed further, funding is the provision or provision of funds by lenders or investors to parties who need funds.

For start-up companies or startups, in general, funding by investors is done through three types of investment instruments, namely shares (equity), convertible notes, and venture debt.

Well, this article will discuss venture debt as a funding instrument with its advantages and disadvantages.

Venture Debt

Venture Debt is funding in the form of debt that must be repaid to the lender along with interest or profit sharing in accordance with the agreement.

Advantages of Debt Venture Funding Instruments

One of the advantages of venture debt is that the process is easier and faster. Investors or investors will carry out a credit scoring process or credit worthiness assessment. After you and the company are declared eligible for a loan, the money will be disbursed immediately.

Second, this funding does not reduce the share of company ownership. Due to the nature of debt, venture debt does not require the issuance of shares to investors both now and in the future.

Well, this venture debt is also the right solution for companies that have positive cash flows. For startups that are already able to generate stable money, the company can pay back loans from the proceeds of business on a regular basis.

Disadvantages of Debt Venture Funding Instruments

The weakness of the venture debt funding instrument is that this funding instrument usually requires collateral (it can be in the form of corporate assets or personal assets). Lenders usually need collateral so that they can lower their risk in the event of bad credit.

Second, your company must have a good credit track record. Thus, if this venture debt fails to pay, it will have the potential to make a credit history that had a good status to a bad status.

Interest expense or profit sharing is quite high. Depending on business risk, risk of economic conditions or credit history conditions, lenders may charge high interest or profit sharing.

Now, after knowing the advantages and disadvantages of venture debt, do you think this venture debt funding instrument is right for your startup?

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