SaaS Capital Compared to Other Financing Options

Our Committed Credit Facility is an effective financial solution for many, but not all, SaaS companies. Here is how our approach fits into the financing landscape.

While each company's situation is obviously unique, there are some basic pros and cons to the most commonly available forms of equity and debt  – venture capital, venture debt, and accounts receivable (AR) financing.

At one end of the spectrum is Bank Debt, which can be suitable for companies who are looking for a modest amount of capital to “smooth” cash flows.  It is the least expensive source of capital, but tends to come with the most restrictions and generally offers the least amount of capital.

At the other end of the spectrum is Venture Capital, which is most appropriate for early stage businesses or for those who are executing massive growth plans (i.e. Salesforce.com or WorkDay).  While most SaaS companies raise some form of equity early in their development, a Series B or C round is an expensive way to fund growth later on when the risks are much lower.

Venture Debt is designed to extend the runway of a venture-backed company, essentially enlarging an equity round and theoretically lowering its blended cost of capital. However, in practice, it’s not that useful, as it typically comes at exactly the time when company coffers are full, and the term loan structure means the amortization eats into the runway it was supposed to help extend.  

SaaS Capital Committed Credit Facilities offer the most capital of any lender with long commitment and amortization periods. The structure allows a SaaS business to fund its growth longer than any other form of debt, and because funds are drawn down over time, it saves on interest expense. The chart above shows SaaS Capital facilities as more expensive than venture debt because the rates and fees tend to be about 15% higher than venture debt providers.  Upon measuring the actual total interest expense, however, our facilities are less expensive because they do not require unnecessary borrowing.  And, if measured by the cost per month of runway extension, the SaaS Capital facilities are much less expensive than venture debt.

Next Steps

  • Download a full analysis comparing the different financing options by filling out the form to the right.
  • See our criteria for investment
 

Contact Us:

SaaS Capital
1225 Hayward Avenue
Cincinnati, OH 45208
(p) 513.368.4814 

Northeast Office: 
810 Seventh Avenue
Suite 2005
New York, NY 10019

West Coast
7900 E Greenlake Drive NE
Suite 206
Seattle, WA 98103
(p) 303.870.9529