Venture Debt vs. Equity Dilution
For founders today, debt is a strategic alternative to mid-stage equity rounds. By taking a loan instead of selling another 5% of the company, you preserve upside for yourself and your team. However, the cost of capital is more than just the interest rate.
The "DSCR" Factor: Can You Afford It?
Lenders look at your Debt Service Coverage Ratio (DSCR), your Net Operating Income divided by total debt service (principal + interest).
- Safe Zone (DSCR > 1.5): Revenue easily covers debt, leaving room for growth.
- Danger Zone (DSCR < 1.1): A single bad month or high churn spike could prevent repayment, potentially triggering default.