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Ask HN: Have you taken on debt to fund your startup?
15 points by mritchie712 7 days ago | hide | past | favorite | 12 comments
I run a SaaS and we're looking into non-dilutive funding options. Here are the categories we're looking at:

- Loans (e.g. https://www.captec.io, https://www.triplepointcapital.com)

- Factoring (e.g. https://www.capchase.com, https://www.pipe.com/)

- Venture Debt (e.g. https://www.svb.com)

A few questions:

- Has anyone used any of these products or a competitor?

- I can't find much information on the terms for these products / reviews of the process, do you know of a place to get this?

- Are there options I'm missing?

In Australia our major commercial banks offer unsecured loans to businesses based upon the business' cash flow. Example eligibility requirements: turnover of at least $75K per year ; have been operating as current registered business for 1 year+ ; you can provide 12 months of business financial data from your accounting software. You'd need to convince the bank that your business is a relatively reliable and sustainable cash generating machine. Example terms: 9% p.a. interest rate, borrow up to $250k, no fees.

Another trick you can do, orthogonal to finance, is the annual-prepay trick. Offer the "sign up for 12 months at a X% discount" plan to customers. If you can get some fraction of customers to pay you for a 1 year subscription in advance at e.g. a 30% discount that might really help the business' cash flow.

Edit: if your SaaS business is the one linked in your profile then since you are not currently offering your customers an annual prepaid plan then you MUST watch Jason Cohen's talk about optimising SaaS cashflow from his 2013 microconf talk "Designing the Ideal Bootstrapped Business" https://youtu.be/otbnC2zE2rw?t=801

Yes, it is the one in my profile and we currently only offer an annual plan upon request. Definitely worth making it an explicit offer.

The terms from your commercial bank are great. I'm sure they wouldn't lend to a US company, but do you mind sharing the name of the bank?

These terms were from NAB, for reference see https://www.nab.com.au/business/loans-and-finance/business-l...

Cheapest but toughest way is SBA [0] Financing through traditional banks. You get the lowest interest rates (usually Prime + 1-2% extra) with upto 10 years of payment term. The problem is that it can take 2-3 months with tons of documentation and a personal guarantee if you are small. I have some experience with this for our own SAAS so happy to share more if needed.

I wouldn't rule SBA backed loans out because the more expensive options may give you capital faster but you pay a lot more premium. And when I say "lot more", I mean "a hell of a lot more premium"..

[0] https://www.sba.gov/funding-programs/loans

Do you mind sharing the company you were able to get funded thru SBA? I was aware of SBA, but didn't think SBA would fund a SaaS.

For non-dilutive financing, look at Pipe. I can wholeheartedly vouch for these guys.


I signed up for Pipe, it's really easy, but it's unclear if it's the "best deal" without having to apply to 10 other places.

I've seen a few people use Founderpath - https://founderpath.com/

So in the past I almost exclusively grew my companies through revenue and borrowed funds, it can be stressful but it also is empowering as you don't have investors to please. A few comments from my point of view.

1. Loans are fine just watch the terms. Almost always you'll be signing a personally guarantee on them. I used credit cards, home equity, business loans etc. Look to your local small community or regional banks which many times are more willing to work with you.

2. IMO avoid SVB's products generally, they really aren't that favorable to startups. Your local smaller community banks will usually beat anything SVB will offer. In the US it is also worth pursuing government backed loans (SBA) etc.

3. Take advantage of SCORE, https://www.score.org/resource/list-startup-resources. Score has mentoring and other services which can help you in non-monetary ways which can be super helpful. Not saying they are perfect, but a lot of retired execs volunteer services there and have networks they can help you explore.

4. Factoring: I did work for a couple of Factoring companies, in general I advise people to avoid factoring companies at all costs. It is IMO the most expensive type of money you can get legally, it isn't rare to lose 30% on factoring, e.g. they "buy" your invoices at 70% of face value, sometimes less depending on your market and size. You can get better deals sometimes, but generally they are taking a pretty decent risk so you'll pay for it in some terms. I've seen promises from factoring companies that they only take 10%, but then they charge management and collection fees which people don't realize makes it still roughly a 30% take, or more. Many times you can get an existing investor to do this at much better terms then a factoring company.

5. Last thing, if you have $5 or $10k and want to start developing corporate credit that isn't personally guaranteed it isn't that hard to do. Again, go to the smaller banks, talk to them and open a 6-12 month CD (or other product they recommend), and then ask for a loan against that product (e.g. use it as collateral). Some times they will only loan 50%-70% of it initially, but that changes pretty quick. Use the loan, pay it off early, rinse and repeat. As you do this they will start upping the limit and letting you borrow more then the value of the collateral, until at some point you'll qualify for standard loan products. This isn't an immediate fix, but it builds corporate credit and over 1-2 years you can have a nice revolving line to pull from. Last time I did this, we took $2k and after 2 years had a $100k revolving line we could utilize that was not personally guaranteed. This can be difficult to do with the large banks as it doesn't fit their standard products, but smaller regional or community banks usually are far more flexible and happy to help.

Have you found community banks will actually lend to a SaaS though? I'd imagine they are more familiar with local businesses (e.g. a pizza shop, barber, etc.). I'd love work with a credit union / local bank, but I kind of counted them out considering how unfamiliar they'd be with our business model.

Also one other comment on using services from like SCORE (and there are others like them). If you use them to help many times local banks (and definitely SBA loans) will give you preferred rates/access as they consider it a risk reduction that you have "professional" guidance. Honestly some of the advice I got a couple of times was wacky shit that in no way helped my business, but it helped me secure a loan so it was worth every minute of my time.

Tech people forget that 90+% of small business exists outside of tech and use these services all the time to grow cause they can't raise VC funding. There are a ton of resources available to us, we just have to not always look for tech only solutions/providers. I am also not saying these services are always easy or good, so you still have to do some homework, but in terms of percentages of businesses that get local loans vs VC dollars it is pretty one sided not favoring VC's. Of course you also aren't getting $10M of cash and no payback terms when you go to a bank, you are getting 5-250k typically, although $1-5M not out of the question once you have built up to it and prove the business supports those value. I have a friend who's small real estate investing business has over $1M in line of credit from 2 local banks, that's how he flips houses and remodels his rentals before sale etc. And his entire business is just him, and he subs out all work.

Yes, it sometimes takes a little extra effort with some specific lenders of course but very doable. Overall a SaaS business to most banks is a subscription business much like a local gym, martial arts studio, etc so it isn't a foreign business model like tech people think, it is a little harder to loan against those models without any track record however. So if you have no clients and no proof it works no one (even in tech banking) will debt finance you without going the investor/angel route.

If using collateral they ask a lot less questions of course, but they'll still want to see you have a real business. Anytime you work with banks you have to be prepared to show financial statements, subscriber growth, retention, attrition etc as they look at that to gauge risk.

I got my last consulting business financing through a local bank so I could have a line of credit to smooth out payroll/operational costs, because I had a problem in a prior business that failed where it was cash flow not revenue that forced us under. In that business we had plenty of receivables but not enough float to hold us through the long 30-60 day payment cycles of many clients at the time. So when I did a new consulting business (that was successful) I made sure to get a line of credit as quickly as possible from a local bank that then helped me smooth out operational costs/payroll while collecting my payments because no way factoring was going to work. In general the "best" rates in factoring are for physical shipped products, worst rates are for services since there is way more risk on services.

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