Lighter Capital Review
- Suited for small businesses
- Competitive terms and fees
- Excellent customer support
- Unsuited for startups
- Typical time to funding: 1 – 3 months
Lighter Capital Overview
Founded in 2010, Lighter Capital is a business funder that offers revenue-based financing to eligible businesses.
This funder offers a very specific product to a specific type of merchant. At the moment, Lighter Capital specifically works with high-growth, high-margin businesses in the tech industry, including “software, SaaS, tech services, digital media, and similar companies.” In the past, Lighter Capital has worked with clients such as MapAnything, SteelBrick, and BIGWORDS.
Lighter Capital’s loans are often touted as alternatives to bank loans (which tech companies have difficulty getting because they do not have collateral) or VC financing (which is a very long process and requires giving up equity in the business).
Instead of offering traditional business installment loans, Lighter Capital offers revenue-based loans. To repay the loan, Lighter Capital will deduct a percentage of the borrower’s monthly revenue until the lender has deducted a pre-determined amount of money. Because repayments are tied to cash flow, borrowers do not need to worry about paying a set amount each month.
Additionally, Lighter Capital may be able to help your business grow in other ways. The company has an active community program with which you may be able to connect with peers, venture capitalists, and other people who can help your business grow.
Is Lighter Capital right for your business? Keep reading to find out!
Table of Contents
Lighter Capital offers revenue-based business loans.
You must meet these requirements to qualify for a Lighter Capital loan:
|Time in business:||N/A|
|Business revenue:||$200,000 per year ($15,000 for the last 3 months)|
As stated above, you must own a tech company to qualify for financing.
Your specific time in business and credit score do not matter, as long as you’ve made at least $15,000 in the last three months. However, Lighter Capital does pull your credit score to evaluate your general credit history. Additionally, your business must have gross margins of at least 50% and be at least partially US-based to qualify.
Terms & Fees
These are Lighter Capital’s terms and fees:
|Borrowing amount:||$50,000 – $1 million (first round)
Max $3 million with additional rounds
|Term length:||Typically 3 – 5 years|
|Factor rate:||x1.35 – x2.2|
|Additional fees:||Legal fees (typically about $3,500)|
Lighter Capital offers a maximum of $1 million for your first round of funding. However, the lender will never offer more than 33% of your annual revenue, so most businesses may not be offered the full amount. After that, businesses may be able to borrow additional rounds, for a maximum total loan size of $3 million.
Instead of collecting a fixed amount every pay period, Lighter Capital deducts a percentage of your revenue each month. According to the FAQ, the lender will typically deduct between 2% and 8% (with a maximum of 10%) of your monthly revenue for repayment.
Because your repayment fluctuates along with your cash flow, Lighter Capital loans do not have set repayment dates. However, the loans do have to be repaid before the three-, four-, or five-year term is up. If you do not repay by the end of the term, the remaining debt is due in one lump sum (that said, Lighter Capital typically works with clients to ensure that this does not happen).
Instead of interest, Lighter Capital sets a “return cap,” calculated by multiplying a factor rate by your borrowing amount. Factor rates typically range from x1.35 – x1.8, but can go as high as x2.2. Like it is with a merchant cash advance, your repayment amount is calculated before the loan is issued, and you simply make payments until you hit the return cap. For example, if you have a factor rate of 1.5, and you are borrowing $100,000, you will make payments until you have repaid a total of $150,000 ($100,000 x 1.5 = $150,000), regardless of how long it takes.
According to Lighter Capital, loans with longer terms have higher factor rates but lower monthly deductions. On the other hand, loans with shorter term lengths typically have lower factor rates but higher monthly deductions. The company typically gives merchants multiple options so the merchant can choose the offer best suited for their business.
Aside from the return cap, borrowers will have to pay legal fees, which usually cost around $3,500. Otherwise, you will not have to pay any fees unless you default on the loan.
Because Lighter Capital does not charge interest, it’s not technically possible to calculate an annual percentage rate (APR). For comparison’s sake, however, the company states that the average effective APR is between 20% and 25%. That said, your effective APR will vary depending on the factor rate and how long it takes you to repay the loan.
To kick the process off, you’ll need to fill out an application online via the Lighter Capital website. The information you supply will give Lighter Capital an overview of your business.
When you have completed the application, a representative from Lighter Capital will reach out to you to discuss your business and their funding product. If both parties decide its a good fit, you can continue the funding process.
According to the website, Lighter Capital can typically provide funding in about four to six weeks. However, after your first round, additional rounds only take about three or four days to fund.
Sales & Advertising Transparency
On their website, Lighter Capital provides plenty of information to help potential merchants decide whether or not this is the service for their business. After perusing the site, you should have a good sense of the lender’s terms and fees, whether you’re eligible for the service, and whether or not a Lighter Capital loan would be a good fit for your business.
Customer Service & Technical Support
Lighter Capital has a comprehensive FAQ that supplies answers to basic questions merchants might have about the service.
If you need to speak to a representative from the company, customer service is available via phone or email. Lighter Capital also has a relatively active presence on Twitter. In my experience, the staff is responsive, knowledgeable, and willing to answer questions. However, as no reviews online address customer service specifically, I cannot say if my experience is standard.
Negative Reviews & Complaints
Lighter Capital has a profile on the Better Business Bureau website with an A+ rating (though it is not currently accredited) and no negative reviews or complaints. Otherwise, the service has very few customer reviews online, but has been extensively covered on news and business publications on the web.
Here are a few reasons Lighter Capital may not work for your business:
- Not For Startups: Lighter Capital is not for entrepreneurs that are just beginning to get their businesses off the ground. You’ll need at least $15,000 in monthly revenue and a solid gross margin to qualify for financing.
- Long Time To Funding: The first round of funding typically takes a month or two from the time of application to funding. If you need capital immediately, Lighter Capital may not be the best choice for your business. That said, once you’ve secured one round of funding, additional rounds can be funded at a much quicker pace.
- Must Repay Loans Immediately: Borrowers must start repaying their debt immediately. The need to make repayments may force business owners to prioritize revenue over other metrics.
Positive Reviews & Testimonials
Lighter Capital has a few high-rated reviews on Facebook and Google; however, none of the reviewers left comments. The company has also recently been featured by a number of media outlets, including TechCrunch, The Huffington Post, NASDAQ, and Forbes.
Additionally, the company has a few customer testimonials on their blog, and you can see other businesses Lighter Capital has worked with on their clients page.
Here are commonly cited reasons people like Lighter Capital:
- Doesn’t require equity
- Repayments fluctuate with cash flow
- Collateral not required
We’d like to hear from you, though! Have you worked with Lighter Capital? What was your experience like? Leave a message in the comments.
Lighter Capital services a very specific type of business, but it’s worth considering if you qualify.
Because Lighter Capital strictly works with businesses in the tech industry, eligible businesses would benefit from working with a lender that understands their business. Additionally, although you still have to make monthly payments, Lighter Capital’s revenue-based loans offer more flexibility than loans with traditional fixed payments. Ultimately, Lighter Capital is a viable alternative to VC funding or bank loans, especially if you are not interested in giving up equity or don’t have any collateral.
If you do not fit Lighter Capital’s criteria, you still have options; check out our comprehensive reviews of other small business lenders.