Should You Consider Venture Debt Financing in 2023?

Should You Consider Venture Debt Financing In 2023?

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After wrapping up Q1 of 2023, businesses across Canada face the continued question of how best to fund their Research and Development (R&D) initiatives. With a particularly aggressive market demanding more businesses and a notable slowdown in venture capitalist funding, leveraging government-available funding like the Scientific Research and Experimental Development program (SRED) is an extremely valuable way to enhance your capital stack and boost your R&D throughout the year.

While SRED is Canada’s largest government R&D tax credit, there is one particular element that applicants need to be aware of when planning how to allocate their calculated capital: unlike other forms of capital, SRED tax credits can take weeks or even months to arrive. This waiting period can be detrimental for companies that need to be able to aggressively fund their current stage of development or pursue additional research to facilitate future growth and development.

Using an interim funding source like venture debt financing can be a vital way to extend your cash resources and reduce the stress caused by wait periods for government grants and/or tax incentives like the SRED program. Below, we’ll provide a brief overview of what venture debt funding is, as well as the benefits of partnering with a trusted lender like Venbridge. Read on to learn more!

What is Venture Debt Financing?

In the simplest of terms, venture debt financing is a source of non-dilutive financing, predominately aimed at early and active growth-stage companies. Where other avenues of funding, like venture capitalists, private investors, and mezzanine financiers, will typically expect investees to relinquish some degree of equity to receive capital. Venture debt financing recognizes that startups and R&D-focused businesses, in particular, often lack standard physical resources to use as collateral, and thus allow you to leverage other assets such as tax credits (e.g. SRED) to receive funding.

Why Consider Venture Debt Funding?

Maintaining full control over your equity can be crucial for startups and growth-phase companies, as the ability to pivot and develop as needed can be vital to the success of your project. Whether your project is based in the technology, pharmaceutical, defence, or related sectors, VDF offers significant benefits when it comes to overcoming the common issues with raising capital, including the amount of time it takes to find valid sources, the challenges of forced valuations, and the risks associated with having to relinquish board seat, and more. Venture debt is also typically less expensive than equity funding, straightforward and faster, and adding debt can allow you to grow your business for a higher valuation when raising equity.

What to Look For in Venture Debt Financing?

The Canadian financial market offers businesses a wide selection of lenders and partners to choose from when considering both equity and VDF options. When selecting a venture debt partner, you’ll want to look for a firm like Venbridge that:

Sees Your Potential

Not every financial lender will connect with your business and truly understand your model, concept and objective. The right partner will be in tune with your vision and offerings and will look for ways to leverage all assets to give you the best loan for your specific needs and abilities.

Offers Flexibility

Rigid lenders can often create more problems for startups and businesses by levying hefty early-payment fees that slow down your overall growth stack. Having the flexibility to develop organically without unnecessary restrictions protects your best interests and puts everyone in the right stream of profit. Venture debt financing allows you to establish a comfortable and realistic repayment cycle, removing ambiguity and giving you the ability to make the most of your credit in the meantime.

Is Transparent and Efficient

Transparency should always be given when handling debt financing with clear terms and conditions, as well as pricing readily available. Similarly, having a simplified loan structure that allows your startup to draw multiple disbursements is ideal.

Aren’t Over-Restrictive

Growth capital doesn’t have to come with excessive constraints or limiters, also known as “covenants”. Included terms and conditions should adequately reflect the nature of the loan and protect your future interests, not hinder them.

Venture Debt Financing With Venbridge

Venbridge is proud to partner with founders from multiple industries to provide easily accessible immediate scaling capital that doesn’t dilute their bottom line. Our goal is to empower SRED recipients by helping them maximize their tax incentives with the funding they can trust when they need it most.

Venbridge offers financial lending for SRED filers with a minimum of $100k on their SRED claim ($15k monthly) and one year of filing history and offers access to capital in as little as 2 business days upon approval from our underwriting team.

Learn how we can partner with your team to enhance your R&D initiatives through venture debt lending by contacting our team today!

Want to see how much you qualify in SRED credits? Use our free online tool here!

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