When you’re a software as a service (SaaS) company, you know that having a great product is only part of the battle. You also need to have access to the capital you need to grow your business.
Knowing what types of business funding are out there is key to ensuring you can get the cash you need to continue developing your product and growing your customer base.
Debt financing options are often a good choice for SaaS companies looking for funding. Four of the most popular options include:
- Venture Debt
- Revenue-Based Financing
- Working Capital Loans
- MRR Financing
Let’s dive into each one a bit further.
Venture Debt
Venture debt works by providing your company with a loan in exchange for equity. This is a good option if you’re looking to raise money without giving up too much equity in your company.
The reason why venture debt is a popular choice for SaaS companies is that it’s often used to help fund things like product development or customer acquisition
It also doesn’t require any form of collateral to be used, making it perfect for start-ups that don’t own many assets.
Revenue-Based Financing
Revenue-based financing is a type of loan that is repaid using a percentage of your company’s future revenue.
This option is often used by companies that are looking to grow quickly and don’t yet have the cash flow to support traditional loans.
One thing to keep in mind with this type of financing is that it can be expensive if your company’s growth slows down or stalls completely.
Working Capital Loans
A working capital loan is a business loan used for everyday operations and nothing long-term.
This type of loan is often seen as a good option for companies that must ensure their day-to-day operations continue to run smoothly and grow faster.
The downside to this type of loan is that it is often tied to the business’s credit, so missing any payment can severely damage a good credit score.
MRR Financing
Monthly recurring revenue (MRR) financing is a type of loan that is repaid using a percentage of your company’s monthly recurring revenue.
This option is a good choice for companies that have a good customer base and can provide a steady cash flow month over month.
One thing to remember is that if your company’s growth stalls, or if you have a slower month, this type of loan can become very expensive.
Find an Option That Works for You
Each type of debt financing has its own set of pros and cons. It’s important to do your research and figure out which option is best for your company.
The most important thing is to make sure you have a solid plan in place before taking on any type of debt financing. This will help you repay the loan and avoid any financial difficulties down the road.