Imagine this. To get your tech company from A to B, you decide to execute a time-sensitive transaction. Knowing that companies consider debt as an affordable means to finance event-driven activities, you seek out a bridging loan.
Because of the nature of your tech business model - high in intellectual property and low in significant tangible assets, your traditional bank lender sees you as a risk. Worse still, apart from taking equity, you're unaware of alternative finance options. Sound familiar?
For the tech sector, the solution to financing event-driven activities lies beyond traditional debt finance. Post financial crisis, alternative financiers entered the debt finance market to satisfy SME demand with a comprehensive range of financing options. Many of these alternative financiers, in particular, private debt funds, specialise in providing funding to the fast-growing tech sector.
Indeed, the way private debt funds help tech companies finance event-driven activities is with private debt finance bridging loans.
What is a private debt bridging loan?
Similar to a traditional bridge loan, a private debt bridge loan is a short-term loan that provides companies with immediate cash flow.
How does it work?
Bridge loans cover costs until you receive capital from your next funding round.
What makes private debt bridging loans attractive for time-sensitive transactions is the fact that private debt funds can:
- Set up loans quickly
- Structure loans to tech sector business models
- Underwrite covenant-lite terms
How do tech companies typically use these loans?
Tech companies can use private debt bridging loans to capitalise on time-sensitive activities, such as:
- MBOs
- Acquisitions
- Repurchasing shares
- Preparing for an IPO
- Financing an exit strategy
What collateral is needed to back a private debt bridging loan?
What makes alternative finance so special for the tech sector is that fast-growing companies can use IP as collateral to secure loans.
A private debt advisory can give you independent and impartial guidance about appropriate options open to you, as well as help you with your ongoing growth finance needs.
In conclusion
If you're a pre-profit tech company that:
- Lacks a credit rating
- Has yet to acquire a track record of generating cash flows
- Has previously been denied finance by a traditional lender
- But can demonstrate growing revenues
Then the solution to financing event-driven activities lies beyond traditional debt finance. The alternative private debt finance market can service your requirements with finance that is:
- Quick to set up
- Underwritten with terms suited to your business model
- Cost-effective
And finally,
If you'd like to discuss options for financing a time-sensitive transaction, drop me a line and we'll set up a time to chat.
