A New Era of Debt Financing
Financing growth through debt has long been a staple of modern corporate economics, especially for early-stage ventures and emerging growth companies. But intense competition among lenders in the past decade has changed the rules of the game. What was once a straightforward business consisting of fixed-rate loans backed by hard assets now features an array of complex deal structures. Floating rates, loans backed by the projected commercial viability of borrowers’ products just coming to market, and longer-term deals with new incentives are just a few of the creative newer approaches to early stage corporate debt financing.
Borrowers now have more choices than ever before, with the opportunity to access funding with low to no dilution at attractive terms customized for their specific needs. At the same time, deal structures have become far more complex. To maintain their targeted internal rates of return (IRR), while improving flexibility in terms, lenders are more often relying on protective measures such as covenants. Borrowers who fail to read the fine print or educate themselves completely about this new lending environment may risk finding themselves in default or paying more than necessary over the long term.
Our white paper this month, A New Era of Debt Financing: Flexibility Continues to Grow as Hidden Costs Arise, is a deep dive into this fascinating corner of the early stage corporate finance world. It also provides a first look at some recent research based on our comprehensive database of hundreds of deals our debt finance consultants have handled over the past 14 years. Now, more than ever, it is crucial for borrowers to know their options and the potential implications of their decisions as they seek the best terms. If you are considering raising funds through debt, I’m sure you’ll find this month’s white paper a profitable read.