What venture debt is
The British Business Bank describes venture debt as lending funds to early-stage, high-growth companies that are already supported by venture capital. It is typically an additional source of funds, supplementing venture capital rather than replacing it.
Lenders underwrite it differently from a normal business loan. Instead of relying on profits, venture debt takes into account the equity already raised by the company and the company’s ability to raise more.
Most deals include warrants: rights for the lender to buy shares later at a set price. One UK bank’s guide says warrants give the lender the option to buy a stake in your company at a later date. The strike price is usually linked to the company’s valuation at its latest equity round (Clifford Chance, October 2022).
Venture debt true cost calculator (with warrants)
Illustrative example figures. The default values are examples or dated published figures, not quotes or market rates. Inputs marked Example are our own illustrations, even where one provider’s published figure is shown beside them. Replace them with the figures in your own offer.
Important information. RaiseDebt publishes general information about UK business finance. It is not financial advice or a recommendation, and it is not an offer or invitation to borrow. RaiseDebt is not a lender and is not authorised by the Financial Conduct Authority (FCA). Calculator results are illustrative estimates based on the figures you enter, not quotes. Lenders decide eligibility, rates and terms, and may run credit checks. Borrowing by sole traders, partnerships and other individuals can be regulated by the FCA; you can check any firm on the FCA Register.
Schedule
Assumptions and definitions
- Interest = (SONIA + margin) ÷ 12 on the balance each month. SONIA is held flat at the figure entered.
- Interest only for the interest-only months, then equal capital repayments each month to the end of the term.
- The arrangement fee is deducted from the money you receive. The end-of-term fee is paid with the last instalment.
- Warrant value = coverage × loan. Warrant stake = warrant value ÷ strike valuation. The lender’s gain = warrant value × (exit valuation ÷ strike valuation − 1), counted as a cost to existing shareholders at the end of the term.
- The effective annual cost includes the warrant gain. The cash-only figure leaves it out. Early repayment fees are not included.
- Effective annual cost (estimate) is the internal rate of return (IRR) of the cash flows, meaning the money you receive after upfront fees and then every payment and fee, each at the date it falls. It is the annual rate r at which the present value of all of them is zero, Σ amount ÷ (1 + r)t = 0 with t in years. With monthly flows this is the same as (1 + monthly IRR)12 − 1. It is not a lender’s quoted APR and leaves out any cost not entered here.
- Results are rounded estimates for illustration and are not an offer of credit.
How to work out the true cost of venture debt
- Enter the loan and the rate. Use the loan amount, SONIA and the lender’s margin from the term sheet.
- Enter the fees and repayment profile. Add the arrangement fee, any end-of-term fee, the interest-only period and the total term.
- Enter the warrant terms. Use the warrant coverage, the strike valuation and a realistic exit valuation.
- Compare the cash cost with the all-in cost. The gap between the two figures is the cost of the warrants to existing shareholders.
When companies use it
The main use is to extend runway between equity rounds. In the British Business Bank’s example, a loan of £2-3m alongside a funding round can extend runway by an additional three to six months. One UK bank says it is often used to provide 3 – 9 months of runway extension to the next round. Companies also use it for capital spending, research and development, stock or customer acquisition (one UK bank), or as a buffer if a round is delayed.
It does not suit companies without venture capital backing, or those without a credible path to the next round or to break-even. Repayments come out of the cash the company is burning. Businesses without VC investors more often use revenue-based finance, asset-based lending or a term loan.
How much you can borrow
The British Business Bank says a business can sometimes obtain a venture debt loan of up to £10m. One UK bank lends £1m - £10m, with a limit of Debt to equity: ≤ 33%. A European law-firm briefing from Clifford Chance, October 2022 says borrowers can usually raise around 25 to 50% of the amount raised during their most recent capital round.
The UK market has grown. A 2026 legal briefing estimates venture and growth lending to UK businesses at c.£4.5bn in 2024 (up from c.£2.8bn in 2020).
Terms and repayment
A typical facility starts with a repayment holiday and then amortises. One UK bank describes an Initial capital repayment holiday followed by capital and interest repayments through to maturity.
- Term: typically structured between 36 – 48 months at one bank, with a maximum of 60 months. Another offers a 3 year term.
- Interest-only period: one bank says it would range from 6 to 18 months. A 2026 briefing says Interest‑only periods of 12 to 24 months are now common.
Amortisation starts before most venture-backed companies are cash-generative. Plan the repayments into your cash runway, not only the drawdown.
What it costs
Lenders do not publish their margins. One UK bank lists the components: Pricing includes interest, arrangement fee, warrants, early repayment fee and/or backend fee. The British Business Bank says venture debt can come with high interest rates relative to traditional business loans.
Interest is usually a margin over SONIA, which is 3.7335% as at (Bank of England database (IUDSOIA)). A 2026 legal briefing says the economic cost of venture debt often lies elsewhere: in warrant coverage, arrangement fees, original issue discounts, and repayment timing, and cites market analysis showing mid-teens annualised returns for lenders once warrants are counted.
Example With the calculator defaults (£5m at SONIA + 8%, 1% arrangement fee, 3% end fee, 12 months interest-only then 24 months amortising), the cash cost is about 14.3% a year. Warrants over 10% of the loan at a £50m strike, worth three times as much at a £150m exit, give the lender a £1m gain and take the all-in cost to about 22% a year.
Security and covenants
Security is usually wide. One UK bank says facilities are Typically structured with security taken over all assets (including Intellectual Property); another takes a Debenture. A 2026 briefing notes that Lenders often take security over most of the company's assets, even where the business is still relatively young. Facilities can also be unsecured, with intellectual property often the key collateral (Clifford Chance, October 2022).
Profit-based covenants are rare, because the borrowers are often loss-making. One bank describes facilities with No financial covenant, another as Typically structured without onerous financial covenants. The 2026 trend is towards liquidity, revenue and growth metrics, and Protective clauses are standard.
Who qualifies
You need venture capital backing first: the British Business Bank says a business must already have secured venture capital investment. Lenders look at their investors, recent equity rounds, and estimated cash burn rate.
One UK bank publishes its criteria: Enterprise value +£10m (based on previous fund raising), Growth of 20%+ forecasted for next 12 months and Minimum existing sales revenue of >£2m.
Lending to companies is generally outside FCA regulation. One provider states that its venture debt products are not regulated by the Financial Conduct Authority or the Prudential Regulation Authority.
Who provides it
- Banks with technology and innovation banking teams (example).
- Specialist and challenger banks (example).
- Specialist venture debt funds and private credit funds. A 2026 briefing notes increasing participation from both banks and private credit funds.
Pros and cons
Pros
- Less dilution than raising the same amount of equity.
- No board seat: the British Business Bank says providers do not demand a board seat.
- Extends runway and gives a buffer if the next round is late.
- Usually few or no profit-based financial covenants.
Cons
- Warrants still dilute existing shareholders (Clifford Chance, October 2022).
- The cost is high once fees and warrants are included.
- Security usually covers all assets, including intellectual property.
- Repayments come out of cash the company is burning: Interest and principal payments can be burdensome for a growth company if it burns cash in the meantime.
- Only available once you have venture capital backing.
Frequently asked questions
What is venture debt?
A loan for venture-backed start-ups and scale-ups that supplements equity between rounds (British Business Bank). Source: British Business Bank
How much can I borrow?
Sometimes up to £10m, according to the British Business Bank. One UK bank lends £1m - £10m with debt capped at a third of equity. A 2022 law-firm briefing put typical sizes at around 25 to 50% of the last equity round. Source: British Business Bank; UK specialist bank venture debt page (Shawbrook); Clifford Chance
What are warrants?
Rights for the lender to buy shares later at a set price, usually linked to the valuation at your last or next round (Clifford Chance, October 2022). If they are exercised, existing shareholders are diluted. Source: Clifford Chance
What does venture debt cost?
Interest plus arrangement, end-of-term and early repayment fees and warrants (one UK bank). A 2026 legal briefing cites mid-teens annualised returns for lenders once warrants are counted. Source: UK bank Guide to Venture Debt (HSBC Innovation Banking, PDF); DWF
How is it repaid?
Usually interest-only for a period, at one bank from 6 to 18 months, then in instalments to the end of a term of about three to four years. Source: UK bank venture debt product page (HSBC Innovation Banking)
Are there covenants?
Usually no profit-based covenants. Liquidity, revenue and growth tests are increasingly common (DWF, 2026). Source: DWF
What security will the lender take?
Typically all assets, including intellectual property (one UK bank). Source: UK bank venture debt product page (HSBC Innovation Banking)
Can I get venture debt without VC investors?
Generally not. Revenue-based finance, asset-based lending or a term loan may be options instead.
Sources
Checked on 19 October 2026. Lender and provider pages are cited as evidence of what one firm publishes, not as recommendations.
- British Business Bank: What is venture debt?
- UK bank Guide to Venture Debt (HSBC Innovation Banking, PDF)
- Clifford Chance: Venture debt: a lifeline for growth companies (Oct 2022, PDF; European perspective)
- UK bank venture debt product page (HSBC Innovation Banking)
- UK specialist bank venture debt page (Shawbrook)
- DWF: Venture debt in the 2026 UK funding ecosystem (21 May 2026)