Forums: Discussions for entrepreneurs and small business.

Matt, if you’re thinking about debt financing, the term ROI (Return on Investment) won’t apply. Terms that signify financial gains associated with debt financing are “interest”, “interest rate”, “APR (Annual Percentage Rate)”, or “yield”.

Not unlike an equity investment, the terms of a loan depend not only on the interest rate you’re offering, but also on whether or not you are able to secure the loan, the credit risk that’s associated with the loan, the merits of your business plan, and even alternative sources of financing such as factoring, credit card advances, and the like.

In general, if you are seeking debt financing for a mature company that’s in business for a number of years with more or less predictable sales, some collateral and perhaps even access to alternative sources of funding, you will likely get away with a lower interest rate than if you were seeking the same loan amount for a startup.

Debt financing can actually get quite creative, so don’t just think of the interest rate as the all determining factor. If need be, you use shares to secure the loan, offer warrants to convert the loan into equity, or add other kickers to make the offer more attractive for lenders.

Although there’s isn’t a gold standard, lenders or investors that invest in debt are generally looking for offerings with solid risk/return ratios that outperform mainstream investment opportunities, which tend to reflect a lower risk, but also a lower rate of return.

I hope this is somewhat helpful.


Mark



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Jackson Steiner
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Advanced Document Design for entrepreneurs, intermediaries, and the financial services industry.
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There are so money lenders in the market, and they all lenders have different eligibility criteria and terms & conditions, even sometimes these money lenders decide their rate of interest, however these money lenders can not charge very high interest rates, because they also have to follow the rules and regulation of the regulatory body.

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