Venture debt is reaching smaller startups. What founders should check before signing

Venture debt used to be a tool for late-stage companies with big revenues and bigger investors. That is changing in Southeast Asia. In the first half of 2026, the region recorded 23 debt deals worth US$1.36 billion, up from 17 a year earlier. The average deal fell from about US$99 million to US$59 million, according to the H1 2026 Funding Report.

More deals at smaller sizes means lenders are reaching companies that would not have qualified a few years ago. With Series A rounds shrinking and equity harder to raise, many founders will be offered debt for the first time.

First, ask whether debt fits the plan

Venture debt works best as a bridge to something specific: a revenue milestone, a profitable quarter, a higher valuation at the next round. It extends runway without selling equity at today’s price.

It works badly as a substitute for a business model that isn’t working. A lender expects to be repaid from cash flow or from your next equity round. If the next round is the repayment plan, ask yourself the uncomfortable question: what happens if it takes nine months longer than expected?

Read the total cost, not the headline rate

The interest rate is only part of the price. A Singapore Guide published last January 2026 puts typical rates at eight to 15 per cent a year, with upfront origination fees of one to three per cent, commitment fees on undrawn amounts, legal closing costs and prepayment fees.

Then there are warrants: rights for the lender to buy shares later at a fixed price, usually sized at five to 20 per cent of the loan amount. Warrants are how lenders share in your upside, and they are real dilution, just deferred.

Add it all up before comparing offers. A loan at 11 per cent with a three per cent fee and generous warrant coverage can cost more than a loan at 13 per cent with neither.

Also Read: As venture funding retreats, Thailand’s corporate investors gain more power

Match the repayment schedule to your runway

Most venture loans start with an interest-only period, often six to 12 months, followed by monthly repayments of principal. That schedule matters more than founders expect.

If principal repayments begin before the capital has produced results, the loan starts draining cash at the moment you need it most. Model your cash position month by month with repayments included, not just the day the money lands.

Understand what can trigger a default

Covenants are the conditions you agree to keep while the loan is outstanding: minimum cash balances, revenue targets, limits on further borrowing, lender approval for certain decisions. Southeast Asian lenders tend to use extensive covenants, and waivers are common, but you should know which ones you are likely to breach.

Pay particular attention to the material adverse change clause. If it is defined broadly enough to include a market-wide downturn, a lender could call the loan for reasons that have nothing to do with your company. Ask for it to be limited to changes specific to your business. Check also whether the loan can be called if your existing investors decline to join your next round.

Know what you are putting up as security

Venture loans are usually secured. That can mean a charge over all company assets, including intellectual property, bank accounts and receivables, and often the assets of operating subsidiaries in other countries.

In this region, lenders sometimes ask for personal guarantees from founders. A personal guarantee turns a company problem into a personal one. It is worth negotiating hard to remove, cap or time-limit it, even at the cost of a slightly higher rate.

Also Read: SEA’s venture capital shifts from mega-rounds to AI and SaaS

Watch the currency

Most venture debt in the region is denominated in US or Singapore dollars. If your revenues are in rupiah, dong or pesos, a weaker local currency raises the real cost of every repayment. Founders often focus on the interest rate and forget that currency movements can easily wipe out the difference between two offers.

Bring your board in early

Taking on debt usually needs approval from existing investors under your shareholders’ agreement. Lenders may also require existing shareholder loans or convertible notes to rank behind them. Raising these issues late can delay closing or sour relationships with the investors you will need at the next round.

What lenders are actually looking for

From the lender’s side, the questions are consistent. Who backs this company, and will they support it in a downturn? How much runway is left, and how disciplined is spending? How quickly and honestly does management report bad news?

Founders who answer those questions before they are asked tend to get better terms, and they are better prepared for the conversation if something goes wrong.

Debt is a tool, not a lifeline

Venture debt reaching smaller startups is good news for Southeast Asia’s ecosystem. It gives founders an option between dilutive equity and running out of cash. But it is a contract with real consequences, not a cheaper form of equity.

Read the term sheet the way the lender does: by asking what happens when things don’t go to plan. And have experienced legal counsel review it before you sign.

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