The product will typically be used for a particular project, such as purchasing new stock or entering a new market. 

The interest rates on the new venture debt product will be 10-15% with the time period to borrow funds being no more than 12-18 months. 

Crowd2Fund has already seen the first venture debt on its platform with Planks Clothing borrowing funds to purchase stock for the next skiing season. 

It specifically chose the product as it ties in with its working capital cycle and gives it the flexibility it needs to service the debt, as well as meaning it doesn’t have to sell any equity within the business.

Unlike traditional debt funding, Crowd2Fund does not require businesses to have two years of trading history and revenues of over £100,000.

The platform’s credit assessment of the businesses seeking venture debt will take into account reviewing strategy plans of the business, the previous business activity of the founders and the company’s historic trading data. 

The increased APR of venture debt is also indicative of the increased level of due diligence carried out, but Crowd2Fund has warned that some failures should still be expected.

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“Venture debt is suitable for earlier stage businesses which are fast growing, typically at a rate of 50% revenues year-on-year, and who would not normally have access to traditional debt,” said Crowd2Fund.

“The key metric is their revenue growth trajectory, typically double-digit growth year-on-year.

“While these businesses could sell equity to raise funds, this is often not their preferred option due to them not wanting to sell parts of their company at a relatively low price early on in their lifecycle.”

Crowd2Fund also explained that venture debt would allow retail investors to participate in a new asset class and generate higher returns than existing comparable products on the market.

“As these types of investments are riskier than other debt crowdfunding products, only sophisticated investors will be able to deploy funds in these campaigns,” the platform added.

“The weighting of venture debt opportunities in an individual’s portfolios will be based on their risk appetite and investment objectives. 

“Sophisticated investors with less tolerance for risk will be encouraged to mitigate this by including venture debt as a relatively small percentage of their portfolio.”

Pictured above: Chris Hancock, CEO of Crowd2Fund