Venture debt explained: A practical financing guide for startups and growth

What is venture debt financing?

If you have a startup business, then venture debt is a type of business loan financing available for you, especially if you've already secured backing from capital investments or institutional investors. Venture debt, unlike traditional bank loans, isn't just based on your company's past profitability or the assets you have secured. Lenders focus on the growth trajectory of your company, the quality of your investors, and the future possibilities.

In other words, venture debt is a form of credit that high-growth companies might consider when they're not quite ready or willing to seek additional equity funding. This offers them the chance to access cash without immediately giving up ownership or altering their business valuation.

What is the purpose of venture debt

As a startup founder, you know equity is expensive, as with each round, you see a reduction in ownership. Every discussion you have about valuation demands your time and effort.

Venture debt offers you an additional lever to enhance your business strategy. Here’s how you can leverage venture debt:

• Give yourself more time between funding rounds
  
• Pay for hiring, advertising, or expanding your product
  
• Pay for working capital during times of rapid growth
  
• Don't raise equity when the value is low.
  

If you use it right, venture debt gives you time and options.

It's also important to note that in the 2025–2026 funding environment, equity rounds—especially Series B—are taking longer to close as investors apply stricter diligence and valuation discipline. As a result, venture debt is increasingly used as a bridge to profitability, not just a bridge to the next funding round.

For founders, this means using debt strategically to reach cash-flow breakeven or key revenue milestones before returning to the equity market.

How venture debt financing works

Venture debt is typically secured following an equity round, like Series A or B. This equity round gives you, as a business owner, the assurance that your company has institutional support and the potential for future fundraising opportunities.

A typical venture debt facility includes:

• A fixed loan amount
  
• An interest rate higher than that of more traditional debt
  
• A defined repayment schedule (often 24–48 months)
  
• Often includes small equity warrants
  

In order to give your business time to use capital before repayments on principal, many debt venture facilities have an initial interest-only period. As a small or medium enterprise (SME) owner in Singapore, this structure can be especially beneficial when your revenue is increasing, but you have an irregular cash flow.

Common structures and types of venture debt

There are various ways to obtain venture debt financing.

• Growth capital loans: Intended for development projects
  
• Term loans: Structured payback over a predetermined period
  
• Infrastructure financing: If your startup relies heavily on hardware or materials
  
• Flexible borrowing for working capital through revolving credit facilities.
  

Since each structure has a distinct purpose, you can employ a combination of these.

Benefits of venture debt

As a business owner in Singapore, you’d appreciate venture debt because:

• Less dilution: You retain more ownership when the value of your company isn't at its peak.
  
• Easier access to funds: Debt facilities usually finalise more rapidly than equity rounds, allowing you to secure capital more quickly.
  
• Longer runway: Venture debt can help you achieve key objectives before you need to seek additional funding.
  
• Strategic flexibility: You can utilise capital to expand your business without the need to renegotiate your ownership structure.
  

This kind of flexibility can be very important for your startup as you aim to grow in a competitive marketplace, and venture debt Singapore can provide you with that.

Venture debt vs equity financing

The most significant distinction between venture debt and equity financing lies in ownership. You can secure funds for your business by selling shares through equity financing. You won't need to repay it, but you'll forfeit a portion of your business ownership permanently.

On the other hand, when you take out venture debt, you're borrowing money. You still retain ownership, but repayment of the loan is a non-negotiable obligation.

Venture debt is most effective when you implement good planning, establish clear goals, and maintain tight controls on your finances.

Risks and disadvantages to understand

You need to understand that venture debt doesn’t equate to ‘easy or safe’ money.

Here’s the reality:

• You have to make fixed payments towards repaying, even if your business is in the loss.
  
• The rate of interest is steep compared to traditional bank loans
  
• Certain actions could be restricted depending on your agreement
  
• Poor cash flow management can lead to financial performance.
  

Venture debt can increase pressure if your growth slows down or if your next funding round is postponed. For this reason, before taking on debt, you need to have a thorough understanding of your burn rate and repayment obligations.

Another key risk is over-borrowing. In practice, venture debt is typically sized at 25–35% of your most recent equity round. Borrowing significantly more than this is often considered over-leveraging, as it increases repayment pressure and reduces financial flexibility if growth slows or fundraising timelines slip.

Venture debt vs venture capital, bank loans, and convertible notes

Venture debt vs traditional bank loans

In most cases, traditional bank lending needs:

• A positive cash flow
  
• Consistent record of operational stability
  
• Personal assurances or collateral
  

A lot of early-stage companies don't meet these standards. In contrast, venture debt lenders:

• Anticipate cash flow to be inconsistent
  
• Concentrate on growth and investor backing
  
• Develop customised financing solutions for new businesses.
  

Even though venture debt is easier to get than regular debt, it also costs more.

Venture debt vs venture capital

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Venture debt vs convertible notes

The major difference between venture debt and convertible notes is as follows:

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Both tools are useful at different stages and for different purposes in your business.

Who is venture debt best suited for?

Venture debt typically works best for:

• Established investors in venture-capital-financed startups
  
• High-growth businesses that are getting close to or attaining positive cash flow
  
• Companies with steady revenue or a visibly clear runway
  
• Founders with a thorough understanding of their financial metrics
  

Venture debt may not be suitable for startups with volatile revenue or no clear path to their next equity raise.

When venture debt isn't a good idea

Stepping into the venture debt market might not be the right choice for you if:

• You’re in the very early stages of your startup or haven’t generated revenue yet
  
• Your cash flow is extremely unpredictable
  
• You lack investor support
  
• You’re uncertain about future fundraising efforts
  
• You’re already carrying too much debt and have low growth initiatives.
  

In these situations, considering equity funding or simply reducing your burn rate might be a more secure approach for your business.

Is venture debt common in Singapore and Southeast Asia?

Yes, with the changing marketplace, venture debt is common in Singapore and the Southeast Asian startup ecosystem. Here are some common reasons for the same:

• Rise in domestic venture debt providers
  
• Entry of international banking institutions
  
• Increase in government-sponsored venture debt initiatives.
  

Due to these, venture debt has become a more mainstream option for high-growth startups in the region.

When should a Singapore startup consider venture debt

As a startup business in Singapore, venture debt may be a good option if:

• You have just closed a round of equity.
  
• You want to extend runway to reach profitability or stronger unit economics before raising your next equity round.
  
• You're venturing into the Southeast Asian market
  
• You require funds for hiring or for working capital
  
• The current state of the market makes equity fundraising unpredictable for your business.
  

Venture debt as an option is more readily available than ever, thanks to the expanding ecosystem in Singapore and the support of government-backed programs.

Venture debt providers and schemes in Singapore

Enterprise Singapore: The Enterprise Financing Scheme – Venture Debt (EFS-VD) supports eligible high-growth SMEs with government risk-sharing that has historically covered facilities of up to SGD $8 million.

Risk-sharing levels are reviewed periodically and may be higher for Young Enterprises (typically under five years old) or priority sectors such as Deep Tech, while more mature companies may receive a lower risk-share.

The local banks under this scheme are:

• DBS Bank for VC-backed startups and growth-stage SMEs.
  
• UOB provides venture debt to qualifying startups for expansion, working cash, and strategic objectives.
  
• OCBC Bank targets innovation-driven enterprises.
  

Some Singapore banks, including DBS and OCBC, have also introduced sustainability-linked or “green” venture debt facilities. These loans may offer slightly lower interest margins if startups meet predefined ESG or sustainability milestones, such as emissions reporting, governance standards, or responsible supply chain practices.

In addition, specialised vendors operating in Singapore under this scheme that offer venture debt to small businesses backed by venture capitalists are:

• Genesis Alternative Ventures
  
• InnoVen Capital
  

How lenders evaluate startups for venture debt

When looking at early-stage companies, venture debt lenders focus on:

• The credibility and track record of your equity investors
  
• Enhancing your revenue growth and understanding your unit economics
  
• Understanding your cash flow visibility and monitoring your burn rate
  
• The potential for your company’s growth and the ability to expand your business in the current market landscape.
  

While profitability can be beneficial, it isn't a necessity. In venture debt evaluation, understanding the importance of predictability is crucial for your business.

What happens if a startup cannot repay venture debt?

This may seem like an uncomfortable conversation, but it must be had. If in any case, your business is unable to repay the venture debt, then:

• The lenders may restructure terms, which would be your best-case scenario
  
• They may seize your assets
  
• They may change the conditions of the agreement
  

This can impact your future fundraising efforts. As a business owner, you should know that most venture lenders value relationship building over dispute, but it's important to remember that defaults come with consequences.

How should founders manage cash flow and runway when using venture debt

As a business owner who is using venture debt, you may have trouble managing cash flow. To manage it better, you need to:

• Consider modelling your repayments with a conservative approach.
  
• Keep a clear perspective on your trajectory.
  
• Monitor your cashflow on a weekly basis, rather than waiting for a monthly review.
  
• Be cautious about exceeding on spending on discretionary items.
  

Key venture debt terms business owners should know

As a business owner, before you sign for any venture debt agreement, ensure that you fully comprehend the following:

• Interest Rate: The interest rate tends to be higher for venture debt compared to traditional debt, and there is minimal equity upside for lenders.
  
• Covenants: Venture debt in Singapore commonly includes negative covenants, such as a negative pledge that prevents you from pledging the same assets to other lenders, and minimum cash balance covenants that require you to maintain a set liquidity buffer. These clauses protect lenders but can significantly constrain financial flexibility if cash flow tightens.
  
• Warrants: Warrants act as an equity kicker for lenders and are typically structured as 5% to 20% of the loan value, not total equity. For example, on an SGD $1 million venture debt facility, a lender may receive warrants worth SGD $50,000 to SGD $200,000 at the current valuation.
  
• Repayment schedule: In a venture debt loan, your repayment schedule will consist of monthly payments after any grace period.
  
• Maturity date: The maturity date is the date by which the loan must be paid back in full.
  

It’s important for you to pause and think if a term isn’t clear, because venture debt can quickly amplify mistakes.

How Aspire supports startups using venture debt

Getting venture debt is more than just getting money. The key to your success is effective management. Aspire is here to help your Singaporean startup succeed by giving you the right kind of guidance, by:

• Centralising your capital in multi-currency business account
  
• Monitoring your cash flow in real time
  
• Managing your expenses effectively with corporate cards and set spending limits
  
• Streamlining your expense management and reconciliation processes through automation
  
• Integrating with accounting software to gain better visibility.
  

As you manage the financing of equity, venture debt, or a combination of the two, Aspire empowers you to maintain control over your financial performance without additional complexity. Clarity is always preferable to optimism when it comes to debt.

Final Thoughts

Venture debt should be considered a tool; there's no right or wrong approach when using it. When you use it properly, you maintain ownership and increase your runway. Using it poorly can lead to increased pressure on your operations.

As you consider seeking venture capital, focus more on your management capabilities rather than solely on the amount you can secure. By doing so, you will find that having clear visibility, disciplined financial operations, and the right tools can make or break your business.

Frequently asked questions

Is venture debt a good idea?

When used strategically in conjunction with equity and supported by robust cash flow strategy, venture debt can be a positive strategy.

Who provides venture debt?

Certain banks, specialised venture debt lenders, and government-backed programs are all forms of venture debt financing.

Do you have to pay back venture debt?

Indeed. Venture debt should be considered as a type of business loan that must be repaid on a timely basis.

How is venture debt repaid?

Venture debt is typically paid in monthly instalments, just like a business loan. In the beginning, there is an interest-only payment period, which works as a win-win for both you and the lender.

What is the difference between venture debt and normal debt?

Venture debt is suitable for high-growth, VC-backed enterprises with low assets because it emphasises on future growth rather than profitability. Normal debt, like bank loans, is better for established companies because it demands cash flow, collateral, and good credit.

What are the three types of debt?

The three types of debt are:

• Long-term debt
  
• Short-term debt
  
• Hybrid instruments like convertible notes