Venture capital has long been accepted as the default path for high-growth companies seeking the funds they need to scale. Today, however, equity comes at a higher cost. Venture capital funding often comes with more dilution than founders or leadership teams are comfortable with. In response, many companies are now evaluating their debt load and turning to venture debt as another strategy for extending runway and accelerating their growth while still preserving ownership.
The result is that growth-stage-focused lending accounted for 83% of all completed debt deals in Q1 2025. That number highlights just how common managing a meaningful debt load has become for scaling companies.
As with any major business decision, it’s important to make sure venture debt is a good fit for your company and goals before you bring in capital. So how do you know if your company is ready?
Taking on debt requires clear strategic intent and operational discipline. To prepare for an expanded debt load, your team will need to understand optimal timing and the debt load your growing company can realistically support.
Below, we outline five signs that your company is prepared to pursue venture debt. We’ll also highlight ways to demonstrate your growth mindset and financial discipline to secure more favorable terms.
1. You Have Predictable Revenue and Healthy Gross Margins
The first thing lenders look for is your company’s ability to pay them back. That means predictable, recurring revenue streams, effective cash flow management, and strong gross margins are all going to be important signals of creditworthiness.
Here are a few specific ways growth-stage companies can demonstrate this:
- Consistent ARR or MRR: Annual recurring revenue above a certain threshold (often $5–10M+) shows lenders your team has established product-market fit and retention.
- High gross margins: SaaS companies, for example, often need to show gross margins north of 60–70% to qualify for more favorable terms.
- Low churn and strong customer retention: When customers stick around, your company performance will become more predictable.
If your revenue fluctuates or your margins are narrow, lenders might see greater repayment risk. Once you can show a steady base of recurring cash flow, your team will appear far more capable of managing a healthy debt load with venture debt as a complement to equity.
2. You’re Growth Oriented With Operational Discipline
While lenders do typically look for predictable revenue, venture debt can still be accessible to high-growth companies that aren’t yet profitable or cash-flow positive. This is especially true if your team is able to demonstrate strong growth forecasts and responsible financial management. Lenders know that many scaling companies are investing heavily in growth, but they want to see evidence that your team can balance that ambition with discipline and efficient operations.
Here are a few ways to strengthen your case:
- Efficient burn rate: Signal that spending is intentional and tied to clear growth outcomes.
- Positive trends in unit economics: Show that your company has positive or improving customer lifetime value (LTV) compared with acquisition costs (CAC).
- Proven growth trajectory: Build reliable forecasts supported by factors such as past performance, pipeline visibility, or market demand.
By showing lenders that your company prioritizes both growth and efficiency, you’re demonstrating that you’re ready to take on and manage a meaningful debt load even if you haven’t recently raised equity.
3. You Have a Clear Use of Funds
Expanding your debt load just to have debt is a red flag. Lenders want to see a well-defined use of funds tied directly to your planned growth outcomes.
Here are some examples of strong use cases:
- Customer acquisition campaigns with proven ROI
- Geographic or market expansion where demand has already been validated
- Product development that accelerates competitive differentiation
- Hiring to scale sales, marketing, or customer success functions
Other strategies lenders don’t want to see? Vague or defensive borrowing. You shouldn’t be borrowing to cover operating losses or plug budget holes indefinitely. Instead, you’ll need another plan in place. Clear plans can reassure lenders and also demonstrate to your board and equity investors that you’re deploying capital responsibly.
4. Your Financials and KPIs Are Lender-Ready
Lenders will scrutinize your numbers. If your financials are incomplete or inconsistent, it’ll suggest that your company isn’t ready for debt. On the other hand, clean books and organized reporting set you apart immediately and can significantly speed up the debt raise process.
Before pursuing debt, ask:
- Are your financial statements GAAP-compliant (or close to it)?
- Do you have accurate forecasts with realistic assumptions?
- Can you clearly articulate KPIs such as CAC, LTV, churn, burn rate, and runway?
Red flags for lenders often include:
- Inconsistent or late financial reporting
- Large, unexplained variances between forecasts and actuals
- Lack of visibility into unit economics
These red flags all suggest a company might struggle to handle its debt load responsibly. Investing in strong financial operations is a great way to prepare for debt, and it can also improve your chances of approval and the quality of the terms you’re offered.
5. You’re Looking to Minimize Dilution While Scaling
As you gear up to secure venture debt, one of the most important factors is having a strategic mindset. Founders today are increasingly aware of how dilution compounds over multiple equity rounds. Accounting for those changes in ownership and having a plan for managing your debt load over time can help you finance growth while keeping your cap table intact.
For many companies, the math looks like this:
- Equity can feel cheaper in the short term because repayment isn’t required.
- Long term, the ownership you give up can far outweigh the cost of debt.
Adding debt to your strategy when you need it, often alongside equity, allows you to strike a balance. You’ll have the capital scale, more confidence when working with lenders, and minimized equity dilution.
Final Thoughts
Venture debt has become a mainstream financing tool for growth-stage companies, with the majority of early 2025 debt deals going to them. But to get the most value from debt, it’s important to confirm your debt load matches your growth and repayment capacity first.
If predictable revenue, a recent equity round, a clear use of funds, lender-ready financials, and a priority on protecting ownership apply to your company, then debt could be a positive addition to your funding strategy.
At 5th Line, we work with scaling companies to develop clear financials, credible KPIs, and debt strategies that will serve long-term success.
Interested in exploring whether your company is ready for venture debt? Get in touch with us today to learn what an optimal debt load might look like for your current stage of growth.