We recently explored four strategic reasons why companies take on debt as opposed to other forms of financing, like equity financing or bank loans, debt financing provides a financial foundation for SaaS companies to achieve certain goals. These were situational and relative to where SaaS companies stood in their growth journey. Here, we’ll explore three debt financing advantages that apply to SaaS companies regardless of where they are on that journey.
1. Funds Can Be Received in Tranches
One of the benefits of debt financing is the ability to receive funding as a tranche — a portion of a loan. This means you receive only a portion of your loan amount at a time. This has a few advantages, particularly in that you pay interest on the amount you receive only. Each tranche is essentially a separate loan that must be repaid, but this allows you to still receive funds while paying less interest than if you were to receive a lump sum.
Another benefit of receiving tranches is that this system can motivate you to pursue and achieve goals and objectives. As tranches are only released once your business meets certain milestones, it’s in your best interest to use the funds from the tranche on growth-oriented tasks that bring in more revenue. An example would be hiring experienced sales talent or expanding your marketing strategy.
2. Your Repayment Terms are Scalable and Flexible
At River SaaS Capital, one of our most borrower-friendly debt financing advantages is that repayment terms scale to the financial growth of your company. This gives you the flexibility to continue operating and focusing on growth without worrying about your next payment. As your organization grows, your repayment terms allow you to make larger payments to satisfy the debt obligation faster.
Additionally, our debt financing clients have the freedom to re-borrow principal they have already paid back. While this is situational, the option to do so is available should it be needed. This provides an opportunity for supplementary investment without going through another lender or channel should a circumstantial expense or need arise.
3. There’s No Exit Strategy or Profitability Requirement
If you’re considering debt financing as a funding solution to grow your SaaS company, there’s something you’ll want to watch for in the term sheets you review. That’s an exit or acquisition strategy requirement. Some lenders want to know what your plan is for selling the company. One of the debt financing advantages of working with River SaaS Capital is that we don’t have this requirement. That’s because we know that you might not want to sell in the next few or several years. Or at least that selling it isn’t part of your long-term vision plan.
Another debt financing advantage is that there is no profitability requirement. Again, a small caveat is that this is a benefit of working with River SaaS Capital. We can’t speak for other lenders. We recognize that you can have a strong MRR without necessarily being profitable, and that might be the reason you’re considering debt financing in the first place. To invest in a growth sprint and become profitable!