Business loans

Why consider a business loan?

Business loans can be a great way for founder funded, venture funded or private equity backed businesses to accelerate growth, bridge cashflow requirements, extend runway, fund company shareholder buybacks or fund acquisitions. 

At FounderCo we help software, ecommerce and IT services businesses seeking venture debt, cash flow financing, invoice financing, inventory finance, term loans and revolving lines of credit to sort through their various financing requirements, ascertain the ideal funding solution and connect with the ideal funding partner for their particular situation. With all the different forms of debt financing available, there are options for consideration with or without security, different loan lengths, types and structures, and many with low or no equity dilution. 

We've been involved in helping startups to companies with $100m+ revenue find and start using attractive debt solutions that fit their situation and can help their business.

Top 5 considerations when taking a business loan

#1 What are your anticipated returns from using the business loan?

Are the projects you’ve identified that require the business loan going to generate large enough returns for your business in the form of revenue or profit? Understanding and scoping conservative expectations around the timing of those returns will also allow you to form a perspective on your anticipated net returns from funding the opportunity with the business loan. 

#2 Is your business in a position to afford repayments on the proposed business loan?

It’s critically important that businesses consider the potential cash flow impacts of proposed growth initiatives alongside the underlying commitments required of any business loan. Creating a monthly three-way financial model featuring an integrated profit and loss (income statement), balance sheet and cash flow statement, will assist the business to form these perspectives and ultimately assist a funding partner to understand your assumptions and requirement for a business loan. 

#3 What forms of covenants and security are you comfortable (or not comfortable) with providing to a potential business lender?

As a simple overview, there are some very common forms of security a business loan lender could require. A general security agreement, otherwise known as a GSA creates a senior security interest in all present and future assets of the borrower. A director's guarantee is a personal guarantee, often signed by directors when a company is entering an agreement. It can contain limitations on its recourse which may or may not extend to personal property. There are also some forms of business loans with no security or with limited security (such as over specific customer contracts, stock or based on a share of future revenue).

#4 What pre-existing obligations (other forms of debt or current/non-current liabilities) does your business have? 

Is it appropriate for your business to be exploring a business loan as a primary funding mechanism for the opportunity you’re looking to finance? Do you require any shareholder, board or other approvals to take on additional finance? Depending on the form of business loan, some lenders require a certain level of equity in the business.

#5 What type of business loan are you looking for?

FounderCo have significant expertise in helping companies/founders think through the ideal funding structure (term loan, invoice financing, revenue based financing, venture debt among others) to meet the companies growth objectives. The key characteristics that will determine the suitability of these structures are; the amount of funding required, the timing for the returns from its investment to be generated, the proposed use of the funding and the security comfort of the founders, directors and shareholders. 

FounderCo only requires high level information to give you an initial view on what could be a good solution for your business.

When to consider?

A great time to consider debt financing, is where discernable projects (new product lines, team onboarding, M&A, inventory or marketing financing etc.) provide clear paths to returns for the business, for which an interest rate or cost of capital that’s not tied to the intrinsic value it creates for the business (its equity value), is a far cheaper in real terms than the cost of capital from an equity investment. Depending on the source of debt funding, it can take anywhere from 4 days to around 3 months to settle the transaction, so it’s important to begin conversations about possible options with FounderCo well in advance of requiring the funding. 

Is a business loan available for me? (what are the minimum criteria)

FounderCo has experience in securing $100k - $10m+ in financing from lenders for founder funded, venture funded and private equity backed companies typically generating $3m+ in revenue. If your business fits this criteria, we’d love to chat about the options that may be available to your business.

How to get a business loan

FounderCo’s team are on hand to connect for an initial free consultation to help founders/companies scope requirements and pre-determine funding suitability. Reach out today and connect with us.

How FounderCo can help you get a business loan

FounderCo can guide you through every step of the process, advising suitable structures and relevant funding providers from our panel of preferred business lenders.

Sources of business loans 

  • Specialist funds - these are institutional funds with dedicated credit funds, seeking opportunities to lend from balance sheet or pre-committed funds. 

  • Banks (local and international) - formalised lending institutions, characteristically with the cheapest available funds, but the highest forms of security and servicing requirements required

  • Finance companies - financial intermediaries providing access to unique forms of situational financing, or catering to specific industries

  • Family offices - privately held investment management for a wealthy family or individual, typically investing off balance sheet or a pre-committed fund

Types of business loans

Here are some of the more popular forms of business loans. There are also custom solutions and other forms we can help with.

  • Revenue finance - Revenue-based financing is a form of business loan that pledges a percentage of future ongoing revenues in exchange for money invested. A portion of often daily revenues will be paid to investors at a pre-established percentage until a certain multiple of the original investment (often represented as a finance fee) has been repaid.

  • Venture debt - Venture debt is a business loan to an early stage company that provides funding often alongside or immediately post equity raise to extend runway between equity funding rounds. Typically, these business loans are repaid within a period of 12 months to three years.

  • Term loans - A one-time upfront payment you receive from a lender where the recipient repays the loan with interest over a period of months or years. Term loans can include interest only periods and are stereotypically paid back over longer periods than Venture Debt.

  • Lines of credit - A line of credit (LOC) is an account with a preset borrowing limit that lets you borrow money when you need it. There are usually nominal fees known as a ticking/line fee that are charged (on top of the interest rate, which is typically variable) through the life of the LOC for having access to this capital at any time. 

  • Inventory finance - Inventory finance is a short-term business loan typically used for purchasing stock, or in some cases, the raw materials and inputs to create inventory. These typically provide working capital against stock purchases for 3 to 12 months. 

  • Accounts receivable finance - Accounts receivable financing allows companies to receive early payment on some or all of their outstanding customer invoices for a predetermined % of the invoice. 

  • Equipment finance - Equipment financing is a form of business loan used to purchase business-related equipment, such as a production machine or vehicle.

  • R&D loans - R&D finance is a business loan facility that uses your future R&D Tax Incentive as collateral to provide access to cash in advance

Business loan FAQS

Definitions

  • What is an interest rate? The amount of interest due per period, as a proportion of the borrowed amount. 

  • What is a line fee? A fee charged typically all through the period by the business loan lender to offset the lack of interest earnt on unused funds in a facility.

  • What is a covenant? A set of conditions put in place by business lenders (often related to profitability or the balance sheet) which limits the borrower's actions.

Can you have more than one business loan? (managing multiple loans) 

This will ultimately depend on the security that’s been granted to various lending providers and what the proposed/required security of any additional incoming lender is.