On Friday, crowdfunding platform Crowd2Fund announced the launch of its new venture debt product, which is targeted towards early stage businesses that have a short term requirement to access cash to facilitate growth. The funding portal noted that the interest rates for the product’s loans range from 10% to 15%, with a borrow time period of normally no more than 12-18 months.
While sharing more details about the product, Crowd2Fund stated:
“Venture debt is a form of short-term financing, typically used as project-based finance for a specific purpose. It differs from traditional debt due to the duration of the loan being relatively short, and due to carrying a higher interest rates, normally at more than 10%. It will be typically used by businesses which are already generating revenues and will be able to service the debt. Unlike traditional debt these businesses do not necessarily have to have two years trading history and revenues over £100,000. Crowd2Fund’s credit assessment of businesses seeking venture debt takes into account reviewing strategy plans of the business, the previous business activity of the founders, as well as the company’s historic trading data. The increased APR of venture debt is indicative of the increased level of due diligence carried out. Whilst this enhanced form of due diligence will mean that only the most credit worthy venture debt deals make it onto the platform, and Crowd2Fund still have a 0% default rate, some failures should still be expected.”
Crowd2Fund also noted those businesses that are suitable for the venture debt will be able to increase their value during the loan duration. This is due to the nature of them continuing to grow and therefore will make the associate debt repayments cheaper than them selling equity.
The funding portal added that the first venture debut campaign to launch is Planks Clothing, which is a manufacturer of ski clothes, who are borrowing funds to purchase stock for the next ski season.
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“Venture debt is a form of short-term financing, typically used as project-based finance for a specific purpose. It differs from traditional debt due to the duration of the loan being relatively short, and due to carrying a higher interest rates, normally at more than 10%. It will be typically used by businesses which are already generating revenues and will be able to service the debt. Unlike traditional debt these businesses do not necessarily have to have two years trading history and revenues over £100,000. Crowd2Fund’s credit assessment of businesses seeking venture debt takes into account reviewing strategy plans of the business, the previous business activity of the founders, as well as the company’s historic trading data. The increased APR of venture debt is indicative of the increased level of due diligence carried out. Whilst this enhanced form of due diligence will mean that only the most credit worthy venture debt deals make it onto the platform, and Crowd2Fund still have a 0% default rate, some failures should still be expected.”
