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Considering Venture Debt? Learn the Loan Lingo

If you’ve explored financing options for your startup and have ruled out venture capital and traditional loans, at least at this time, you may be exploring venture debt as another option.

There’s plenty to love about venture debt. It provides cash to fund growth but doesn’t require the same level of dilution as raising VC money, and you retain control over your company (no need to bring on investors as Board members).

If you haven’t been able to qualify for a traditional bank loan because you’re a new startup, venture debt may still be open to you.

Venture debt can also connect you with others in your industry who can help your startup succeed. Just like venture capitalists, venture debt firms often are happy to help you build relationships and partnerships that can help your startup grow.

Before you contact a venture debt firm and start shopping deals, it’s a good idea to familiarize yourself with key terms or loan terminology so that you can fully understand any offer or agreement put before you.


With a loan, amortization spreads your debt repayments out across the loan repayment period. Typically, it’s even over the course of the loan, though some loans can include a period of Interest Only, or IO, at the outset of the loan.

For larger companies, some portion of the debt funding may include bullet repayment terms. The bullet structure doesn’t have amortization from month to month, but does have a lump sum due at the end of the loan period.

Conditions Precedent

You’ve applied for venture debt and reviewed the term sheet (which looks fantastic), but before you proceed, make sure you understand what are called the Conditions Precedent, or “CPs.” These outline actions that you are required to take before receiving the funds.

Some founders may overlook the CPs (they’re typically at the back of the term sheet), but it’s important to review them closely because they might have terms that could trip you up from smoothly accessing the funds.

Some common Conditions Precedent include:

  • Due diligence to the investor’s satisfaction (get clarification on what that looks like)
  • Presenting a detailed business plan and budget
  • Meeting regulatory requirements in your industry
  • Securing necessary business licenses or permits

There may also be CPs regarding the investor receiving certain fees, whether the deal goes through or not, as well as stipulating that your startup can’t shop around for a better deal once the term sheet is signed. Bottom line: read the Conditions Precedent to ensure you understand what might keep you from receiving funds.


Term sheets may include financial covenants, which are requirements for your startup for the duration of the loan term. For example, if you are seeking capital to acquire another business, your covenants might state that you must maintain a certain margin or profitability level. Why? The lender will be looking for sufficient earnings capacity to cover business operations and demonstrate continued value creation generally in line with your expectations when borrowing the funds.

If any of the covenants you’ve agreed to are breached, your lender has the right to consider your loan defaulted and take various actions, including demand the loan is repaid in full.


Fees are a familiar topic, at least, but be aware that there are several different fees you may be required to pay with venture debt.

Commitment, or Closing, Fee

Once your loan has closed and all the documents have been signed, you will be responsible for a closing fee, usually around 2%. This fee may be paid in cash or reduced from the capital you receive.

Maturity Fee

The maturity fee, payable in cash, is due when the loan is repaid in full. Not all venture debt includes a maturity fee, while some use it instead of warrants.

Prepayment Fee

While it would seem a good thing to pay off your loan early, it’s important to realize that there is commonly some fee to do so. The Prepayment fee is compensation for the lender for arranging the funding in case the loan is repaid earlier than expectations and is common. The important question to analyze is what those fees look like, and to make sure you understand how much will be due when you repay or refinance your loan.


Venture lenders provide high-growth companies with capital funding to help accelerate growth but have more limited returns than venture capital investors.

In exchange, as lenders are receiving less upside, they structure loans with security interest to take less risk. Typically, venture lenders take a security interest in all assets of the business including intellectual property. If a borrower can’t pay the loan in full, the lender has the right to the proceeds from assets to cover the unpaid debt.

By familiarizing yourself with loan terminology like the above, you are putting yourself in a better position to understand the terms of your venture debt term sheet. If you have any questions, Get in touch and we can help you.

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30+ Year Global Strategic Partner

SVB is a leading American bank providing products, services and strategic advice for businesses at every stage. They operate as a go-to commercial bank for start-ups and established corporations, offering venture funding, private banking & wealth advising. SVB is the largest lender to technology companies globally.

SVB has built its reputation as the financial partner of the innovation economy – helping individuals, investors and the world’s most innovative companies achieve extraordinary outcomes.
PFG and SVB have maintained an official strategic partnership since the late 1980’s. We have collaborated together as co-lenders and extended each other's ability to reach new markets and provide deeper capital to high-growth companies.

PFG and SVB have provided growth debt across the U.S. & Canada, Europe, Middle East, Asia, and Latin America, where we co-manage a Venture Debt Latin America Growth Lending Fund.

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IFC — a member of the World Bank Group — is the largest global development institution focused on the private sector in emerging markets. IFC works in more than 100 countries, using its capital, expertise, and influence to create markets and opportunities in developing countries, leveraging the power of the private sector to end extreme poverty and boost shared prosperity.

PFG and IFC are strategic partners where we extend IFC’s direct venture and VC funding, collaborating on fintech and tech lending across global growth markets.

10+ Year Global Strategic Partner

Aims to be the partner of choice for the private sector in Latin America and the Caribbean. They finance projects to advance clean energy, modernize agriculture, strengthen transportation systems and expand access to financing.

IDB Invest, a member of the IDB Group, is a multilateral development bank committed to promoting the economic development of its member countries in Latin America and the Caribbean through the private sector. IDB Invest finances sustainable companies and projects to achieve financial results and maximize economic, social, and environmental development in the region. With a portfolio of $16.3 billion in asset management and 347 clients in 25 countries, IDB Invest provides innovative financial solutions and advisory services that meet the needs of its clients in a variety of industries.

PFG leads a joint venture with IDB Invest that provides debt capital to emerging innovative tech companies across the region via our Latin America Growth Lending Fund. The initiative brings investment expertise into LAC from top notch global players in this field.