Lighter Capital offers an alternative to traditional business loans that is specifically designed to benefit tech companies. It was founded in 2010 in Seattle by entrepreneurs who wanted to find an effective way to helping businesses in the technology industry to grow and thrive. Since then, they have provided funds for 80 different companies and become one of the leading providers of revenue-based financing in the country.
- Alternative approach
- Wide borrowing range
- Simple loan application
Lighter Capital calls their loan service RevenueLoans. The unique aspect of these loans is that they are repaid as a percentage of a company's top-line revenue. This alternative approach to business loans is intended to tie the loan repayment to the business's success, so payments rise and fall with the health of the company. This also gives Lighter Capital incentive to help their customer businesses grow. And to that end, they do provide financial advice and business strategy expertise from their own team of investors and experts.
Wide Borrowing Range
Lighter Capital loans have a wide range, from $50,000 to an impressive $1 million, up to a third of a business's annual revenue, and they allow companies to make multiple loans. Loan repayment is a fixed percentage of monthly revenue, which means it is tied directly to that business's financial performance. This can be helpful when revenue is down because it also lowers the loan payment, which can prevent situations where a struggling company is stuck with loan payments they can't afford.
At the same time, because it is to Lighter Capital's benefit for their customers to thrive financially, they provide a range of services to help businesses grow. This includes business strategy meetings from their team of expert investors. RevenueLoans do not require any personal guarantees or collateral, as the loan is secured against the business's assets.
Standard loans from Lighter Capital are structured with a five year repayment plan. However, the loan can be repaid faster without any prepayment penalties. Since payments are tied to a fixed percentage of revenue, the time to pay off the loan can take as long as it needs to. Though the percentage that is taken out of revenue to repay the loan is somewhat flexible, Lighter Capital says they always keep it below 10 percent in order to ensure that the loan repayment does not negatively impact a business's financial health.
Simple Loan Application
The loan application process is a fairly simple three step process that looks like this:
- Company Snapshot - A ten minute overview of the business that is applying for the loan. At this point, applicants are required to share some basic financial information.
- Getting to Know Each Other - A conversation with the investment team at Lighter Capital, in which they answer any questions the business might have and get some more detailed information from the applicant.
- Closing the Deal - At this point, Lighter Capital issues a term sheet with a specific loan offer for the applicant to review, and if they agree with it, they can sign and close the deal.
It takes around 30 days total to receive funds, which is faster than many traditional bank business loans. All a business needs to qualify is revenue of $15,000 a month and gross margins of 50 percent. Lighter Capital funds are available in all fifty states, and they have plans to expand internationally.
- Technology companies only
- Potentially high interest rates
- Slow funding
Only for Company's in the Tech Industry
Lighter Capital's RevenueLoans are designed exclusively for businesses in the tech industry, specifically those involved in software, digital media, online businesses, and tech services. Without a doubt, this will be the biggest drawback as most industries simply cannot access or benefit from their loan services. They readily admit that non-tech businesses will find more suitable sources of financial help elsewhere.
High Interest Rates
The website also readily admits that the interest rates for their loans are often higher than what a bank will offer, though they claim that this is offset by the fact that they can loan more money for early stage growth than most banks.
Though there are no prepayment penalties, Lighter Capital discourages early repayment on their website. There does not appear to be any real incentive for paying the loan off early. Also, RevenueLoans are specifically aimed at helping early-stage growth companies. Consequently, they offer more money to those kinds of businesses.
Thirty Days to Funding
As stated above, funds are typically available within 30 days of applying for the loan. It should be pointed out that as far as alternative types of loans go, there are definitely faster options out there, including some that provide revenue with a couple of days or even a matter of minutes.
To put some numbers on it, their financing model works best for companies that generate over $180,000 in revenue each year. In fact, they require at least $15,000 in the last three months before the loan application can even begin. Clearly, this rules out many smaller companies. Also, it means they are not available to start-up businesses that have not yet generated revenue. Start-ups are encouraged to get on the mailing list and wait until later.
Compare to Other Business Loans
The Bottom Line
Lighter Capital seems to have a fairly narrow focus, with their loan services intended for tech companies making $180,000 a year. As a result, their services are simply not available to most businesses, so that alone will rule them out in many instances. They even admit that non-tech companies will find better sources of financing elsewhere. However, those businesses that fall within their specific target area will find respectable rates with a wide range of loan amounts available, so for those businesses, Lighter Capital is a great choice. Repayment is practically hassle-free since it is simple percentage off the top of monthly revenue.
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