Video: What’s the Minimum Cash Requirement for a Deal on Venture Debt?
A minimum cash requirement is something that usually a bank will ask the company to do.
And what they’re basically trying to do is make sure you have enough cash in your bank account to cover a good portion of the loan should things go bad.
Now, this is not the best term for a startup because a startup wants to use their venture debt loan as long as possible and extend the runway as long as possible.
So a hypothetical might be a bank might give you a $2 million loan, but they may say you need to keep a million dollars in the bank at all times. You can do the math. That means you’re only getting $1 million dollars for the extra runway.
At Kruze Consulting, we recommend that our startups do not sign up for minimum cash requirements. And if you are going to do a minimum cash requirement, make that number as small as possible.
By reducing that number and making it as small as possible, you’re extending your runway and getting the maximum benefit out of your venture debt loan.