SaaS Finance For Startups

One of the fastest-growing sectors in business is Software as a Service (SaaS), which is already worth almost $200bn globally and is expected to continue growing at a Compund Annual Growth Rate (CAGR) of 19.7%. 

With growth rates like that, it's unsurprising that other businesses are launching SaaS products or trying to enter the market. While many of the most successful SaaS businesses dominate their markets and attract a loyal subscriber base, plenty of small SaaS startups have managed to win customer attention or solve a gap in the market and attain success. 

Dropbox, for example, was launched after MIT student Drew Houston grew tired of losing USB flash drives. He created the SaaS company, attracted seed funding and then enjoyed spectacular growth that delivered a world record: it was the fastest SaaS business to reach $1bn in revenue run rate - taking just 8.3 years to do so. 

While seed funding and other forms of investment are always a good goal for startups, the reality is that many ventures must instead look to finance themselves. In the UK, where there's a less developed technology scene, utilising traditional finance products like business loans or asset finance can help SaaS businesses get started.

SaaS startups and business finance

Lending from a bank or independent lender is a case of deciding what your business needs and then finding the appropriate lender and loan type. This is a task in itself, which is why Rangewell can get involved early in your funding cycle and help you understand the differences between the types of finance you can attract such as business loans, bridging loans, commercial mortgages, asset finance, etc. 

However, all forms of finance are based on a lender's discretion around your business and its ability to repay the loan they offer. If a business is new to market, lenders are unlikely to offer any substantial loans unless you offer personal assets as security. This, coupled with the relative novelty of SaaS as a sector, means traditional lenders may hesitate to back any SaaS startup. 

Rangewell can help you maximise your chances of success by working with you to decide on the right lender and advise you on which types of finance are available, how the rates and terms will affect your startup and even negotiate the deal on your behalf to improve the outcome. 

If you're starting a SaaS company and know you'll need to raise cash to see it grow, get in touch with us now and we'll talk you through your options. 

Lending challenges for SaaS startups

The main challenges for all types of business when it comes to traditional forms of lending are clear:

• Lenders need to see a detailed plan for the business that includes financial forecasts. SaaS startups often struggle to offer reliable financial forecasts as they are tied to a subscription model but must also invest in product design, marketing, customer service etc. It can be hard to plan forecasts until the product is already live. 
• Ideally, businesses must prove they are profitable and can repay a loan. If you're a new business, it's more difficult to do this, and you may therefore need to offer securities from your personal assets, such as property investments, in order to ease a lender's hesitations. 
• Lenders are more likely to offer beneficial terms if you, or another person in charge of the business, have demonstrable experience growing a similar successful business in the past. In the case of a SaaS startup, the relative youth of the sector means you may not have run a SaaS business before and may struggle to demonstrate the expertise a lender looks for. 

How to write a business plan for SaaS startup

When you're launching any business, creating a business plan is generally one of the first steps you'll need to take. However, as a fast-growing SaaS startup, you may have skipped the planning stage or undervalued your business plan so you could instead focus on building an MVP or prototype. We'd strongly advise that you review your business plan in the earliest stages of your startup, especially if you want to raise finance. 

Lenders need evidence of your ability to repay a loan and to have confidence in your business. Creating a strong business plan helps convince lenders of your business model and financial projections. Create your business plan with the following sections:

• Executive summary: this might come at the start, but you'll write it last. The executive summary gives an overview of your plan and is your chance to capture attention quickly. Make it clear what problem your SaaS product will solve, how you'll structure your business model and which financial metrics are most important. 
• Market and customer overview: in the sector you intend to launch in, what is the current market like? What competition is out there, how large a share does technology hold in the niche etc. You'll also need to explore customer types, demographics and behaviours. 
• Problem: using the existing market and customer information above, outline the problems your product will solve. 
• Solution: this is where you'll describe the SaaS product itself. What will your solution look like and how will it overcome the problem you've discussed. What type of software will it be, what is the development timeline, how will it be managed and updated etc? 
• Business model: SaaS companies generally run on a subscription model, but how that subscription works differs from business to business. Describe your proposed model here.
• Financial plan: broadly speaking, you need to cover the costs associated with getting the business running and targets for customer acquisition, churn rate and an overall profit model. This is the section a lender will pay the most attention to, and we'd recommend working with a finance expert to get it right. 

How to make your SaaS model more appealing to lenders

As with most forms of lending in the UK, businesses will be judged on repayment criteria such as business performance, the experience of the Director, any owned assets or property etc. SaaS startups can therefore struggle to demonstrate the financial competency a lender requires. To help strengthen your application, a good business plan is just the first step. Other ways to better your chances are: 

• Have a working prototype or MVP ready to show lenders. If you're still early in the development cycle, it's harder to justify investment as you'll be viewed as more of a risk. 
• Build a list of potential subscribers via email marketing or other lead-generation work. If you can show lenders you have a pool of interested would-be subscribers, your business looks stronger immediately. 
• Demonstrate your experience. If you've been involved in other startups and grown them to profitability or beneficial exits, ensure the lender knows about it as it will instil more confidence in your new business. 

Secured loans for SaaS startups

In the context of a brand new business occupying a competitive market, where lenders may hesitate to offer finance, you might have to readjust your expectations regarding unsecured borrowing. Rather than giving up on a SaaS idea, you could also explore raising business loans or other types of finance by offering personal guarantees and leveraging your home or another asset as security.

This may sound intimidating, but if you work with Rangewell, we'll help you understand exactly how this process can work, identify a deal that suits your goals and minimises the risk to your personal assets. 

Get SaaS startup finance today

While many barriers can limit a startup's ability to secure finance, Rangewell can help you overcome them. Work with our team and we'll guide you through the lender's market, types of finance available and even help you polish your business plan to increase the strength of your application. We'll negotiate on your behalf and secure offers that will support your business' growth, all at no cost to you. 

Stop worrying about SaaS funding and seek finance support from Rangewell today.