Debt Financing Should Be Used for Growth
If you’re researching how to grow a SaaS company, particularly during the scaling stage, you’re going to come across a lot of recommendations and financing options. These include everything from bank loans and debt financing to angel investors and venture capital sponsorship. You may have even obtained funding through one or more of these avenues during your early stage.
But when you’re a scaling SaaS business that’s ready to move up, it’s wise to dedicate resources toward activities that support, sustain, and accelerate growth. That might sound obvious, but often, companies seek funding for things that they think will help open the way for growth. While there are lenders that provide funding for those types of goals, we maintain that debt financing works best when it’s used to leverage the momentum businesses have already built to take it to the next level.
Debt Financing Accelerates Important Business Functions
One of the best ways businesses use debt financing is to make growth-oriented aspects go faster — specifically in sales and marketing. Using funds from debt financing to build out a sales team, conduct SaaS recruiting to find an experienced sales executive or customer success role, expand tactics specific to a SaaS marketing strategy, and more are all examples.
Often, the early stages of a SaaS company require the founder and his or her team to focus on building the product, ironing out the details on the business itself, and gaining the first few hundred subscribers while maintaining great relationships. These are no small tasks and require significant time from everyone involved. But as MRR increases, the product becomes fine-tuned, and the business has solid processes in place, the focus can shift toward accelerating current marketing efforts and providing resources for new tactics. Here’s an example of how to grow a SaaS business in this manner.
Debt Financing Supports Long-Term Strategic Goals
Another common application for debt financing is using it in tandem with or to support equity financing. For example, some SaaS companies will use debt financing to grow their businesses between rounds. While this has its risks, many businesses have used it with success. Others will use a mix of debt financing and equity financing to grow their businesses. In some instances, this is to preserve as much ownership in the company as possible. Ultimately, debt financing — whether it’s the only funding used or functions as a complement to others — is intended and should be used to help SaaS businesses grow.
If you’re a scaling SaaS business that’s exploring your funding options, fill out the form below. We’d love to hear about your business and explore ways to grow your SaaS company through our venture debt financing solutions.