Not every dollar a startup raises has to come from selling equity. Debt can extend runway, fund inventory or equipment, or bridge to a larger round without diluting founders, but its cost is spread across interest rates, fees, warrants and repayment terms that are hard to compare.
This tool puts three common options next to each other: a conventional bank term loan, venture debt from a specialist lender, and revenue-based financing, which is repaid as a share of monthly revenue.
How to use it
How it’s calculated
Bank and venture debt payments use standard amortisation. Venture debt charges interest only during the interest-only period, then amortises the full principal over the remaining term. Total cash cost is all interest plus fees.
Revenue-based financing has no interest rate. You repay a fixed multiple of the amount, and the calculator simulates monthly payments as a share of growing revenue until the cap is reached. The implied annual cost spreads that fixed fee over the repayment period, which is why faster growth makes it more expensive on an annual basis.
Worked example
A company needs $500,000. A bank offers 8.5% over five years, a venture lender offers 12% over three years with six months interest-only, 8% warrant coverage and a 1% fee, and a revenue-based lender offers a 1.4× cap at 8% of monthly revenue, which is currently $120,000 and growing 3% a month.
The bank loan costs about $115,000 in interest and requires fixed payments of around $10,300 a month. Venture debt costs about $116,000 in cash plus $40,000 in warrants. Revenue-based financing costs $200,000 and is repaid in about 40 months, with payments that rise and fall with revenue.
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Frequently asked questions
Can an early-stage startup get a bank loan?
It is difficult without revenue, assets or a personal guarantee. In Canada, the Business Development Bank of Canada (BDC) and the federal Canada Small Business Financing Program are common starting points for companies that do not yet qualify for conventional bank credit.
When does venture debt make sense?
Venture debt is usually offered to companies that have recently raised equity from institutional investors. It is used to extend runway between rounds, and lenders rely on the investors’ backing as much as the company’s cash flow.
Who is revenue-based financing for?
Companies with steady, recurring revenue and healthy margins, such as SaaS or e-commerce businesses. Because repayments rise and fall with revenue, it suits businesses whose income varies month to month.
What are warrants?
Warrants give a lender the right to buy shares at a set price in the future. They are a form of equity, so venture debt is not completely non-dilutive.
Does taking on debt affect my next equity round?
It can. New investors will look at how much debt you carry, when it must be repaid and whether lenders have security over company assets. Debt that matures soon after a round can make investors worry their money will go to repaying lenders.
This tool gives estimates for planning and comparison. It is not legal, tax or investment advice. Confirm numbers with your lawyer, accountant or financial advisor before you sign anything. Inputs stay in your browser and are not stored.