Finance For Software Development Companies

The software industry is competitive and fast-paced, with every new project bringing financial risks to a company. Not only do you need to dedicate your team’s resources towards the development cycle, but you’ll also need to continue to invest in marketing, pay office costs and salaries, recruit new staff etc. 

Taking care of these costs isn’t straightforward – workers in the software sector command higher salaries than most other UK employees, so even your wage bill alone can be significant. Business finance can help you overcome many of these obstacles and fund your software company in an effective way. 

What level of finance you can access depends on your personal history and your business’ performance. Software companies with a record of strong financial performance will be more favourable to lenders and will have access to a greater range of products and better rates – though if you speak to our team first, we can help any type of software firm find suitable finance. 

Finance for software companies can take many forms, including:

• Start-up finance for new companies looking to establish themselves. 
• Working capital finance to help you pay employee salaries and office costs etc. 
• Asset finance to purchase equipment such as computers and servers. 
• Commercial mortgages to enable a business owner to purchase premises rather than leasing. 
• Development finance to refurbish your office or property

Regardless of your software specialisms and the size of your team, Rangewell can help you identify the most appropriate types of loan and find lenders who understand the software sector. 

Speak to Rangewell before commencing with any applications, and we’ll help identify lenders that know the software sector inside and out. We’ll then help you apply and negotiate a deal on your behalf – all at no cost to you. 

Just as your software helps your clients accomplish tasks, Rangewell helps you get the loans you need to make your business grow.

How to apply for software company finance

Businesses that want to secure finance need to approach lenders with a clear business plan that demonstrates financial stability and future profits. A lender bases their decision (and offer) on the perceived risk offered by your business, so the more prep work you do, the better your offer may be. 

In software, the main risks a lender needs to assess will be based around your revenue predictions and development process.

Your sales model will also impact your ability to attract offers – some software businesses operate by leasing to clients, giving them reliable revenue streams across an agreed contractual period. Others who sell software for a one-off fee will have less visibility and control over cash flow and represent a greater risk. 

In either case, your process should involve:

1. Create or improve your business plan: use this to show lenders that your planning is sound and your forecasts are appealing. If necessary, draft in support from your accountant or an external business planning expert to make sure the forecasts will suit lender expectations. 
2. Consider the amount and type of loan you need: business finance is extremely flexible, with all sorts of loans available in different structures that will suit companies at various stages of growth. Will you need a straightforward business loan, or something more complex like a commercial mortgage? Talk to Rangewell if you’re unsure and we can help. 
3. Identify the best lender: mainstream banks might hesitate to lend to software businesses – especially those new to the market that don’t have a demonstrable history of successful operations. Independent lenders may be more receptive but offer higher rates or more restrictive terms. Finding the right balance usually means finding a lender that understands the software sector and can support you in the right way. 
4. Apply for finance: once you have a lender in mind, you’ll need to submit an application that outlines the amount of credit you need and gives the lender the information they want to make a decision. 
5. Offer & negotiation: without Rangewell on your side, you’ll have to wait for the lender to offer you a deal and then either accept or reject it. With our help, however, you can receive a better offer because we’ll negotiate on your behalf and find the right level of finance at the best rates. 

Paying salaries and recruiting developers

The average salary for software developers in the UK is roughly £49,189 - which means paying for a development team is often the highest cost for any software development business. In addition, you’ll need to pay for support staff such as client relationship managers or business development executives. 

Software businesses may struggle with the ongoing cost of salaries during development periods where you won’t generate much profit until launch. In these cases, working capital finance essentially loans money based on your forecasts and allows you to pay salaries and then repay lenders once your new product is live. 

To grow, you’ll need to recruit new developers or senior team members. This often incurs recruitment fees and additional costs – which can be hard to stomach even if your business is managing to pay existing staff. If you’re struggling, recruitment might seem like a pipe dream. However, there’s no reason you shouldn’t be able to grow your business – you just need the right support.

Talk to Rangewell today about your software staffing costs and see how we can help or visit our working capital finance page to learn more. 

Asset finance for software companies

Software businesses tend to be lean and efficient, with most investment focused on talent and technology. Finance lenders can help you with the latter, providing asset finance agreements to help you secure cutting-edge computing and server technology without the upfront costs. 

Asset finance is essentially a lease system where the lender buys the asset for you and gains security over it via its value. You’ll pay them back in a similar fashion to a business loan and, depending on the arrangement, assume ownership once payments are completed. 

Unlike other forms of business loan, where a lender bases their offer on your financial performance, business plan and other metrics to assess the risk of you defaulting on the loan, asset finance is more stable thanks to the value of the asset itself. 

If you’re planning to purchase computers and servers for your software company, asset finance may be the best option for you – it avoids having to spend your cash reserves and allows you to be more flexible with your growth plans. Visit asset finance to learn more. 

Buy your office with a commercial mortgage

Some software businesses seek to purchase their premises as a way to invest in the future of the company. If you’re currently considering buying your office or property for business use, you’ll need to assess your revenue streams and cash in the bank before researching commercial mortgages. 

Software can be a lucrative sector where your business can be high-performing but cash-poor due to the high overheads associated with salaries and recruitment. If you want to purchase your office or commercial property, you may have the overall income to afford it but lack the capital reserves needed for a deposit.

In some cases you may have the cash in the bank available, but hesitate to commit it to a single venture. To keep your cash flow free of the financial burden, you can instead look to secure a commercial mortgage with a high LTV. 

A ‘loan to value’ is a ratio against the overall cost of the property – so a 75% LTV would be a loan for 75% of the cost of your office. Lenders typically offer lower LTVs than those offered in private residential mortgages – but with our team on your side, you can access better LTVs which means you’ll need to commit less cash to the deposit. 

General growth finance

Even successful companies with good turnover tend to require cash injections to fund growth. For software businesses, where income is generally tied to ongoing subscription fees or retainer packages, it can be difficult to find the additional funds required to grow in any direction – whether that be investing in marketing, sales or recruitment. 

Some of the ways in which growth finance can help your software business include:

• Invest in additional development resource to speed up MVP builds or product launches
• Hire branding and marketing professionals either in-house or freelance to promote new software products
• Fund opportunities to present your company at conferences and events
• Test your software with user workshops and focus groups
• Pay marketing costs for digital advertising through SEO and PPC
• Fund anti-piracy services and legal costs for counterfeiting

The amount of finance you can raise and the interest rates offered will usually be calculated based on the forecasted performance of your business, as well as the strength of your application and negotiation. 

Choose Rangewell for help with growth and you’ll get a better deal than if you approach a lender directly. We’ll find specialists who know what it takes to make software businesses successful. Talk to our team today and get started.