The Challenges of Traditional Lines of Credit
While there are many different types of lines of credit for personal and business use. Homeowners have home equity lines of credit (HELOCs), and businesses can obtain a line of credit from a bank or other financial institution. But when it comes to a SaaS line of credit, the options available to SaaS business owners and leaders are more limited.
This is because SaaS businesses typically lack several key things that many financial institutions require from their borrowers. The first of these is a physical location. While you might have an office space that you rent or perhaps even a small space that is owned, it’s not the same as an organization that owns a building. In addition to a structure, other physical assets like hardware are also required by banks as collateral for their financing — whether it be an installment loan or a revolving line of credit.
Without these assets, SaaS companies can find it difficult to obtain the financing they need to accelerate their growth and sustain operations. This is often when companies turn to equity investors, and while this particular form of funding has its advantages, it does require some ownership dilution. In addition, companies with equity investment may have to provide the lender or investor with a seat on their board — diluting not only the ownership structure of the company but also its ability to make decisions free from outside influence.
A Solution to the SaaS Line of Credit Problem
If your company is considering a SaaS line of credit, what are your options? Are you willing to put what assets you do have up as collateral for a bank loan? Are you able to provide the collateral needed to meet bank requirements? If not, are you willing to give up a portion of the equity in your company as well as a board seat in order to get the funding you need?
It’s perfectly understandable why some organizations and business leaders wouldn’t be comfortable with relinquishing control over their direction. Risk is a necessary part of doing business, but when it’s your business, the appetite for risk is understandably more tempered. So what are you supposed to do? What options do you have?
At River SaaS Capital, we’ve structured our venture debt financing solution to provide SaaS companies with the funding they want with the flexibility they need. We take into account a key element of your finances: cash flow. For SaaS companies, churn and other factors can cause a bit of a hamper in your monthly finances. While your goal is to increase business above churn to prevent losses and ensure forward momentum, not every month will be a growth month.
Rather than require you to take a large up-front loan, which you’d be charged interest on despite potentially not needing all of the money right away, we can provide an initial round of funding and tranche what you don’t need. Say you were looking to obtain $1 million in financing. The initial investment might be $250,000, with the remaining $750,000 available to be dispersed as tranches when needed. This way, your organization isn’t charged interest on the $1 million despite only needing a quarter of it at first. When you’re ready for the next tranche, we’ll touch base to see how things are going and discuss the next round. This revolver approach keeps things manageable as opposed to monthly payments with interest on the full loan.
While River SaaS Capital provides venture debt loans to SaaS companies, they are designed to feel more like a SaaS line of credit in that you only take and use what you need now. More is available — but on your own terms and timetable. This is just the beginning of the flexibility our venture debt financing provides as well.
We believe in partnering with our clients. That’s why we also offer equity-based funding options for SaaS companies. This additional form of funding can serve as a “next step” after utilizing venture debt to accelerate growth through sales and marketing efforts, or it can be engaged entirely on its own. Our equity financing features many of the same flexible features as our venture debt financing solutions, and in each scenario, we partner closely with our clients to ensure our funding is aligned with their short- and long-term goals.
Partner with River SaaS Capital Today
If you’ve been considering a SaaS line of credit or another form of growth funding, we’d like to hear from you. Simply tell us what you’re looking to achieve with your funding and what your vision for your organization is, and we’ll help you craft a funding strategy and roadmap to help you bring that vision to life. Fill out the form below to get in touch with our investment team.