Ten Ways Start-ups Use Venture Leases And Loans To Generate Millions

The rise of venture leasing and lending has created an opportunity for sophisticated entrepreneurs to gain a competitive advantage. Savvy entrepreneurs are using venture leases and loans to generate millions of dollars for shareholders by leveraging existing venture capital. They have discovered ways to use this flexible financing as a tool to build enterprise value between equity rounds and to leapfrog less sophisticated competitors.

Venture leases and loans are usually asset-based, financing arrangements. These financings are available to qualified pre-profit, early-stage companies funded by venture capital investors. Start-ups need equipment and working capital to help them execute their business plans and to reach profitability. Venture lenders and lessors provide financing to these firms to help them acquire computers, lab and test equipment, production equipment, phone systems and other needed business equipment.

These specialty financing firms may also provide financing for working capital in the form of accounts receivable and/or inventory loans. Start-ups that qualify usually have promising business prospects, well-defined business plans and have raised more than $ 5 million in venture capital from reputable venture capitalists.

How are these savvy entrepreneurs using venture leases and loans to boost shareholder value and to gain an edge on the competition? Here are some of the ways:

1. To stretch equity capital and to increase shareholder value between equity rounds. By using venture leases and loans, entrepreneurs can forestall going out for more equity while they continue to build and increase the value of their companies.

2. Use of loans and leases instead of internal cash helps to stem negative cash flow. Most start-ups are faced with negative cash flow until revenues build sufficiently to cover costs. Using limited internal cash for equipment purchases, to invest in inventory or for accounts receivable is not wise, if there are better options.

3. To protect working capital. Purchases of intermediate-term assets with internal cash will remove those funds from working capital. Use of venture leases and loans helps to keep the pressure off of working capital as the cost of these assets gets spread over an extended period.

4. To supplement other capital sources. Venture leases and loans supplement equity capital, mortgage financing and other financing available to start-ups.

5. To liberate cash from equipment, accounts receivable and inventory already financed internally. By doing a sale-leaseback, the start-up can liberate cash from equipment already owned. Likewise, the start-up can finance inventory and accounts receivable that have been funded internally by using a venture loan.

6. To bridge-finance equity transactions. Occasionally, start-ups are able to obtain short-term loans to bridge upcoming equity transactions. These loans are usually well secured by all-asset liens against these companies and are generally available for short time frames. Most venture lenders who provide this type of financing require equity kickers in the form of warrants to purchase stock in the start-ups or stock issued directly to them by the start-ups.

7. To hedge against rapidly depreciating equipment. Venture leases can be structured as fair-market-value leases. These leases usually allow the lessees to renew the leases at fair-market-value renewal rates, to purchase the equipment at fair-market-value purchase prices, or to return the equipment to the lessors at the end of the leases. The return option allows the start-ups to conveniently dispose of obsolete or unneeded equipment.

8. To replace venture capital. Start-ups are using loans in the form of subordinate debt as a substitute for additional equity rounds. These loans can be collateralized or unsecured and can be used for many of the same purposes as equity funding ? to continue product development, to add key personnel, to expand marketing and to support sales efforts. Venture lenders generally charge a premium rate for these loans and require sizeable equity kickers in the form of warrants or ownership shares in the start-ups. These loans are generally cheaper than equity financing and may amortize faster.

9. To spread equipment cost over the productive life of the equipment. By being able to spread the cost of the equipment over an extended period, start-ups can get productivity out of these assets while they pay. Paying for the assets out of internal cash has just the opposite effect.

10. To quickly build out infrastructure to allow all employees to be more productive sooner. Venture leasing and lending allow start-ups to add computers, phone systems, networking equipment, software and other business essentials quickly. Employees can be more productive sooner and benchmarks can be reached faster.

Using venture leases and loans is a smart choice for savvy entrepreneurs. It allows them to build substantial equity value with minimal dilution. These arrangements usually do not require board representation or loss of management control. Start-ups are able to add needed equipment and finance working capital with lots of flexibility. Additionally, these forms of financing are significantly cheaper than the likely alternative, more venture capital financing. Savvy entrepreneurs have discovered these advantages and are using them to put their firms ahead of the pack.

George Parker is a Director and Executive Vice President of Leasing Technologies International, Inc. ("LTI"), responsible for LTI's marketing and financing efforts. A co-founder of LTI, Mr. Parker has been involved in secured lending and equipment financing for over twenty years. Mr. Parker is an industry leader, frequent panelist and author of several articles pertaining to equipment financing.

Headquartered in Wilton, CT, LTI is a leasing firm specializing nationally in direct equipment financing and vendor leasing programs for emerging growth and later-stage, venture capital backed companies. More information about LTI is available at: http://www.ltileasing.com

---

Landlord Tips And Tricks

Every real estate investor dealing in rental homes has done... Read More

Venture Leasing: Startup Financing On the Rise

According to Pricewaterhouse Coopers, investment by institutional venture capitalists in... Read More

Pricing Your Apartments

How do you fix a price point for an apartment?... Read More

Smart Car Leasing for Beginners

Car leasing is extremely popular because it provides an attractive... Read More

Lease Contracts - The Meaning of Joint and Several

When you see the phrase "joint and several" in a... Read More

Equipment Leasing Blunders That Can Cost Your Firm a Mint

Rod McHenry, the financial vice president of a document imaging... Read More

Warning - This Lease Might Explode Any Minute

Mike Caringi, owner of a small New Jersey business that... Read More

Leases And Tenants - The Spooky Tenant

You, Mr. Landlord are pleased to find qualified tenants for... Read More

Ten Equipment Leasing Tips - Save a Bundle on Your Next Lease

According to the Equipment Leasing Association ("ELA"), U.S. businesses lease... Read More

Increase Your Business Growth and Cash Flow Through Equipment Leasing

"If it can be manufactured, it can be leased." For... Read More

Lease or Buy? That is Always the Question with Car Financing

Leasing is a perfectly viable and legitimate way to finance... Read More

With a Lease, The Devil Is In The Details

In the last article we looked at a few of... Read More

Getting Your Venture Lease Approved

Each year venture capitalists fund more than 2,500 start-up companies... Read More

Basic Things You Should Know About A Lease Purchase Contract

What exactly is a contract?By definition, a contract is an... Read More

Ten Ways to Save a Bundle on Your Next Lease

According to the Equipment Leasing Association ("ELA"), U.S. businesses lease... Read More

Insiders Guide to Snaring the Best Lease Deal

Every year, thousands of business owners and financial managers are... Read More

So You Want to be a Landlord?

The residual income from owning rental properties may bring more... Read More

What to Consider Before Leasing a Car

Some people choose to lease a car rather than buying... Read More

The Leverage of the Lease

In today's rapidly changing business environment it makes sense to... Read More

What Happens When the Anchor Tenant Moves and You Are On a Ten-year Lease?

Recently there was an article in the Houston Business Journal... Read More

Explore An Effective Revolutionary Approach To Traditional Business Financing

For business owners who need working capital now there is... Read More

How To Choose An Equipment Leasing Company

Leasing has become a preferred form of equipment financing, accounting... Read More

Ten Ways Start-ups Use Venture Leases And Loans To Generate Millions

The rise of venture leasing and lending has created an... Read More

Interim Rent: Equipment Leasing?s Trap Door

Many lessees enter into lease transactions that they believe are... Read More

How Venture Leasing Added Millions To A Startups Equity Value

Craig Berman beamed noticeably after completing his board presentation. Berman,... Read More

True Tenant Tales, Volume One

Working with tenants can be an amazing experience. (Owners and... Read More

Using Equipment Leasing as a Competitive Weapon

Most great generals know how to design winning battle plans.... Read More

Terms to Know Before Leasing A Vehicle - Leasing Jargon Simplified

So, you've decided that you want to lease that next... Read More

The Lease And Purchase Option

If you have an investment property, should you rent it... Read More

Dodging Leasings Grim Reaper: Navigating a Payment Default

In her third Harry Potter novel, ?The Prisoner of Azkaban?,... Read More

Venture Leasing - A Smarter Way To Build Enterprise Value

In 2003, venture capitalists and investors dispensed over $18 billion... Read More