Lighter Capital is an alternative lender that provides revenue-based financing to small businesses that are focused on software and technology services. This type of loan works a bit differently than traditional financing: Your monthly repayment rises and falls based on your monthly revenue, unlike with traditional small-business loans, where you repay a fixed amount of money each month.
Lighter Capital loans are tough to qualify for and aren’t the right fit for every small-business owner, but having a repayment schedule that matches the performance of your business can be a significant plus for some entrepreneurs.
Lighter Capital is best for:
- Businesses that want a flexible repayment schedule
- Entrepreneurs who don’t want to give up equity in their company
- Tech businesses that need large amounts of financing but lack collateral for a small-business loan
Lighter Capital at a glance
|Loan type||Revenue-based loan|
|Cost of funding||10% to 25% APR*|
|Approval time||Pre-qualification in 1-2 days; funding in 2-4 weeks|
|Loan amount||$50,000 to $2 million, depending on your revenue|
|Loan term||3, 4 or 5 years|
* Lighter Capital’s APR varies because the payment size and payback period depend on a company’s monthly revenue, which fluctuates. The majority of companies end up in the range of 10% to 25% APR in any given month, according to Chief Executive BJ Lackland. Lighter Capital lends up to a third of a company’s annualized revenue rate and will lend up to $1 million per company.
Do you qualify?
To be approved for a Lighter Capital loan, applicants must:
- Be a tech company (software, software as a service, tech service or similar online or digital business)
- Have a minimum $15,000 revenue per month in each of the last three months. The typical business has from $200,000 to $1 million in annual revenue.
- Have gross margins of at least 50% (gross profit divided by revenue)
- Use the money for growth purposes (product development, sales and marketing, hiring staff)
Reasons to use Lighter Capital
Repayment flexibility: Your loan repayment rises and falls based on your monthly revenue, and is repaid over a maximum of five years.
For example, if your company borrows $100,000, you’ll repay a percentage of your revenue every month (2% to 8%) until a set dollar amount is repaid (typically 1.5 to 2 times the borrowed amount, or $150,000 to $200,000). So when business is slow, you pay less, and when business is booming, you pay more, which can help you better manage cash flow.
You stay in control: Lighter Capital is a good option for business owners who want to retain 100% control and ownership, instead of issuing shares to outside investors, one common way a high-growth tech company may raise funds..
No collateral or personal guarantee: Lighter Capital does not require borrowers to provide collateral, a physical asset such as real estate that is pledged as security of repayment, or a personal guarantee, which means borrowers are not personally responsible for repayment if the business fails to repay the loan. The lender does take a lien on company assets, which means Lighter Capital would get priority over unsecured debt if the small business fails and is liquidated, according to the company.
Where Lighter Capital falls short
Tougher approval: Lighter Capital only works with technology companies, and to qualify, you’ll need $15,000 per month in revenue and gross margins of at least 50%.
Slower funding: Funding can take from two to four weeks, according to the company. This may be a bit slower than other online lenders (two weeks or less) but is still faster than traditional banks (two to six months).
Higher APR if successful: Lighter Capital is basically betting that your company will be successful and repay the loan faster. The higher your monthly revenue, the faster the loan will be repaid. Since you’ll have to repay the same amount in fees, this actually results in a higher APR on the loan.
The bottom line
Lighter Capital is a solid way to finance growth, but it’s only suitable for tech companies that have strong revenue and gross margins. Businesses that need a large amount of financing and can provide collateral are better suited for a traditional small-business loan.
Updated Oct. 17, 2016.