As a SaaS business owner, one of the most exciting days for an early-stage company is when the business is up and running, and you begin turning a profit, even if that profit is quite small. It is proof that all your hard work and efforts have been worth it, even before significant sales and marketing show up.
Up until this point, you may have been able to fund the business yourself or with the help of family and business partners, but it’s not realistic that you can bootstrap long term. Accelerating your business growth and turning early-stage wins into reliable revenue requires an influx of funding from another source. However, you, like many other SaaS companies, may not know where to start.
What are your financing options, and how do you know if your SaaS business qualifies?
SaaS Funding Solutions
You have several options when it comes to financing your SaaS business. However, not all these solutions will be the best decision for your unique business. Three main categories identify ways to raise SaaS Capital.
Debt Financing
Venture debt financing operates much like other debt financing options, such as a mortgage or a car loan. In this scenario, your business takes out a traditional term loan with a bank or private company and makes regular monthly repayments with interest. These loans may carry low-interest rates, but do not often offer large loans for the full amount a business truly needs to increase growth.
Revenue-based financing is a debt financing option that bases repayments on each month of recurring revenue rather than a fixed payment plan. Therefore, you will never have to make a payment that you cannot afford.
Equity Financing
This form of cash flow exchanges equity in the business for funding. Often referred to as venture capital or angel investors,an individual or firm will provide funding for your business or portfolio company in exchange for a seat on the board, percentage of the company, or other decision-making positions. With this option, you are often not required to pay back the funding up front, but you lose some control of your SaaS Company.
Qualifications for SaaS Financing:
High-Selling Product
The first step in qualifying for SaaS financing is ensuring that your business offers a highly sought-after product or service that is a market fit. Your business will not do well long term if the market is highly saturated with similar products, or if you do not meet a specific pain point for your target audience during product development.
Monthly Recurring Revenue
Monthly Recurring Revenue (MRR) is the predictable revenue that you expect to receive each month. This type of revenue occurs when you run a subscription-based service model. Having a predictable stream of income each month will allow you to qualify for SaaS financing because financiers lending to SaaS businesses know you can make repayments. Typically, the higher your MRR, the higher the dollar amount your business can qualify for.
High Gross Margins
Having high gross margins after all costs to run the business have been paid indicates that your company spends money well and makes wise business decisions. High gross margins mean that your company has more revenue to spend on other business areas and indicates that you will pay back the money you owe because you are not operating at a deficit.
We Can Educate You More on SaaS Financing Options
These available SaaS funding programs can accelerate your business growth early on and provide you the funding your company needs to get started. You no longer have to wonder if your family member or business partner’s cash flow will be enough to carry your company in the beginning stages.
However, you and your team may not immediately know whether to choose debt or equity financing for your early-stage SaaS company. Our knowledgeable and experienced team at RevTek Capital would be glad to discuss your product/service and which option would be optimal. We see things in your business that most lenders don’t and have unique financing insights that we’d love to share with you.
If you are ready to ask our business leaders questions about SaaS financing solutions, connect with our team.
