Similarity of Purpose Doesn’t Mean Solidarity of Service
Just because debt financing companies offer similar funding doesn’t mean their offerings, service, and support are the same. In fact, the differences can sometimes be as fundamentally drastic as debt financing vs. equity financing.
You could say that venture debt financing companies share a common goal: helping businesses on a growth path sustain and accelerate that growth. And while all lenders want owners and leaders who are growing a SaaS company to expand their platform, increase their customer base, pursue new opportunities, and ultimately achieve their goals, the method used isn’t always the same. We’ve put together some questions that are important to ask when you’re researching debt financing companies.
Important Questions to Ask Debt Financing Companies
What are your recurring revenue requirements?
Some debt financing companies won’t work with you without significant MRR. Even if you’re just shy of their minimum, they may not be willing stick with you. The best lenders will consider your business over the long term. Whether you’re a few months away from the minimum or are further out, consider a company that recognizes your potential and hangs in there until they can help you.
How are your loans structured?
Finding debt financing companies with loan amounts that fit your needs is a given. More important is how that loan is repaid. Repayment terms are often flexible across lenders due to the nature of the SaaS industry, but some are more flexible than others.
For example, maybe you need $1 million in funding, but you don’t want to take the full amount just yet (and so you can avoid paying interest on the full amount). Tranches, a portion of the overall loan, are a great option to pay less interest while still getting the funding you need when you need it. And when it comes to paying that money back, are payments flexible? Can you repay based on revenue? Can you borrow principal that you’ve already paid?
And how quickly will you receive your capital? Unlike VC sponsorship, the advantage of working with venture debt lenders is that funding is typically much, much faster. Think weeks, not months. That said, if you need capital right away, some debt financing companies’ application processes might be more extensive than others. Do your research. Ask questions.
What is your appetite for risk?
Wait, shouldn’t debt financing companies be asking you this question? They definitely will, but it’s perfectly valid for you to ask it in return — or first. As with any lender, debt financing companies will need to understand the risk of funding you and your strength as a borrower. Expect due diligence, but do your own, too. Do they require an exit strategy? What collateral do they require?
How do you support your clients?
VC sponsorship brings with it the investors’ contacts and expertise — why should venture debt lenders be any different? They’re investing in your continued growth and want to make sure that you achieve it. So, the best debt financing companies will make it a point to not just fund your efforts, but also to guide you along the way. Ask how they share insights and their own experience. And on the subject of experience, just how much do they have? Venture debt lenders will be considering your leadership team, so you deserve to review theirs. Work with experienced, knowledgeable professionals who understand what they offer and how they can help you.
Take Your Time, Reap the Rewards
Don’t apply with every venture debt lender you come across. Do your research. Compare their offerings and requirements with what you’re looking to achieve as a SaaS business. Contact them directly before applying and ask these questions. Not only will they help you narrow the field, but they’ll also save you a significant amount of time — allowing you to focus your efforts on obtaining funding with the right partner.
