The financing, which does not require an equity commitment from Terralink, is secured with a royalty interest in future revenues. The arrangement gives Terralink the flexibility to pay back larger amounts in higher revenue months and less in months when sales revenues are low. He also noted that the loan structure doesn't require stock or other company ownership commitment that would dilute its equity. Unless a company has already established itself with at least some market presence and an initial operating track record, it is unlikely investors would consider it a desirable candidate for this type of loan.
Many companies require large capital equipment which offers collateral for loans.
In our case, the assets are almost totally 'intellectual property,' the value of which can only be proven in practice. Fernald's comments were affirmed by Peter Moore, whose Portland-based company, Banking Dynamics, played an pivotal role in designing and securing the funding package for Terralink. Lenders have traditionally relied on collateral such as real estate, manufacturing machinery or other capital equipment to secure their loans. In a high technology company such as this, most of the initial investment occurs in the software development. However, commercialization costs come in the sales and marketing of the product.