What Can You Do with Debt Financing?

The Possibilities Are Endless

what can you do with debt financingGrowing a business requires capital, plain and simple. You need to invest in new products and processes, expand sales and marketing initiatives, pay vendors for services, and more. Despite the growth you see, these expenses can quickly catch up to or even overtake existing capital or revenue — but that doesn’t mean it’s game over. Sometimes a financing solution is all that’s needed to maintain and accelerate growth toward higher revenue.

But when you’re growing a SaaS company, not all financing solutions provide the flexibility that you need. Bank loans require collateral that you simply don’t have. And venture capital investment will require you to give up equity in the company as well as a board seat, which could impact your decision-making freedom. Venture debt financing provides the flexibility SaaS owners need in more ways than you might realize. Let’s take a look at what you can do with debt financing.

Scaling Your Business via Sales and Marketing

You want your business to grow, and debt financing lenders want you to grow, too. Ideally, you’ll already have a proven understanding and solid grasp on the market’s demand for your product and will have targeted your efforts around filling that need — adding new clients and maintaining relationships with them. However, capital limitations can restrict continued brand awareness and marketing efforts, resulting in fewer new clients.

One of the most advantageous things you can do with debt financing is apply the capital you receive toward increasing awareness of your company and SaaS product through strategic marketing, developing or improving efficiencies to lower costs, and investing in your product to make it more useful for existing clients to increase retention and satisfaction. Ultimately, debt financing fuels these efforts to help your company push past the barriers to growth and even accelerate growth.

Skip the Fundraising and Go Straight to the Funding

If you’re looking into venture capital for funding, you’ll quickly realize how long it can take to get it. You’ll spend a good amount of time preparing a detailed business plan with an overview of your company and product, in-depth financial analyses, and more. Then you’ll navigate a series of presentations and meetings with your VC investors. By this time, weeks or even more than a month could have passed — all for the chance that you’ll get funded.

If the VC investor decides to move forward, you may even be required to sign an exclusivity agreement preventing you from working with any other investors during this process — making you lose even more time. Once the negotiation is over, and everything is finalized, the entire VC process could have cost you anywhere from 45 days to three months. It may even extend to six months or longer depending on factors beyond your control, such as deals ahead of yours or VC politics.

What debt financing can help you do is focus on actually growing rather than how that growth will be paid for. It allows you to get the capital you need while retaining complete ownership over your company’s day-to-day and long-term decision-making. And the application-to-funding process of debt financing is often much, much faster than a VC round.

Maintain Complete Ownership of Your Business

While this has already been mentioned, it’s worth reiterating: venture debt financing keeps you in complete control of your SaaS business. You aren’t required to give up equity in the company or a seat on your board. The value of this can’t be overstated. Remaining in the position to make the many nimble, quick decisions that are required of business owners is critical.

Whether you legally own the business or are in a senior leadership position, it can be difficult to make these decisions based on your vision when another party is involved. Ordering equipment and supplies, deciding on which candidate to hire for an open position, and choosing vendors for various services without having to get the input of venture capital partner might not seem like a major benefit, but consider what it’s like asking for permission versus deciding for yourself.

Supplement Existing VC Sponsorship

A final point on the list of what debt financing can help you do is complementing existing venture capital sponsorship. If you already obtained financing through this channel but still need additional capital, you’re not out of luck — venture debt can help you extend your cash runway between funding rounds.

This can help you achieve business milestones and ultimately demand a higher valuation. When the time comes for another funding round, the debt financing capital used to accelerate your growth can also help minimize equity dilution.