Conclusion? The SaaS market is on fire!
But with that comes several challenges — lack of funding, poor product adoption, etc. — the reason why 90% of SaaS start-ups fail to achieve the desired level of success.
Especially today, in an economically uncertain era, buyers are more hesitant to make major purchases, and investors are more risk-averse towards early-stage businesses than in the past, which causes SaaS businesses (especially Start-ups) to face prolonged fundraising timelines with heightened scrutiny.
In this context, Recurring Revenue Financing (RRF) emerges as an attractive option for fueling business growth without sacrificing equity or ownership.
RRF is a funding method where capital is provided to a business based on its predictable, ongoing revenue streams. It's commonly used by companies with subscription-based models, like SaaS, Robotics, VARs, etc.
In this post, we'll offer a comprehensive overview of three major RRF partners to watch for in 2024: Ratio, SaaS Capital, and Lighter Capital. These partners offer seamless collaboration opportunities for businesses looking to leverage Recurring Revenue Financing.
Top 3 Recurring Revenue Financing Companies to Partner with
Ratio offers two prominent products: Boost for embedded financing and Trade for true sale based financing. SaaS Capital, a B2B SaaS funding provider, encourages flexibility while avoiding stock dilution, and Lighter Capital specializes in non-dilutive funding for tech growth with no personal guarantees, covenants, or stock transfers.
Let’s review each of them in detail:
Based in: California
Amount of funding: $11 million in venture funding and a $400 million credit facility for customer financing.
Who is Eligible for Funding?:
- SaaS, hardware businesses, robotics businesses, and VARs having predictable revenue from contracts.
- The contract length should be at least 12 months.
Ratio converts your recurring revenue contracts into instant cash — eliminating the need for debt, interest expenses, or dilution. Ratio understands the different financial demands of businesses and solves them through its two product offerings: Boost and Trade.
Ratio Boost increases your deal-closing chances by facilitating Buy Now, Pay Later (BNPL) flexibility for your customers. Customized payment flexibility unique to each customer decreases the risk of losing or delaying deals due to short-term budget constraints on the customer's end. Boost integrates seamlessly into your sales workflows, allowing for more effortless payment management.
How Does it Work?
Ratio Boost works in five simple steps:
Step 1: Register with Ratio by providing your business details.
Step 2: Get approval within 48 hours based on credit risk, willingness to pay, and propensity to expand and integrate Boost into your sales system.
Step 3: Offer personalized Buy Now, Pay Later plans to your customers at the point of sale.
Step 4: Receive upfront Capital from Ratio while your customers pay at their convenience.
Step 5: Leave stressful and manual billing behind with automated reminders for due and overdue payments to your customers.
Benefits of Ratio Boost
Ratio Boost helps businesses accelerate revenue with the following:
- Full Ownership: Maintain complete control over your company while avoiding equity dilution.
- Affordable and Convenient: A more accessible choice than traditional debt, with no fixed interest rate. Pay according to your monthly income, adjusting repayments to your financial condition.
- Dynamic Risk Assessment: Boost provides capital based on the risk evaluation done through its dynamic underwriting — adjusting to the specific elements of your organization.
- Contract Flexibility: Allow for a more personalized financial plan by selecting contracts that best meet your cash flow requirements.
- Quick Cash Access: Allow for a quick response to financial requirements by receiving funds almost instantly.
If the contract value is $100,000, there shall be a fee, called a discount rate, ranging from 8% to 15% to be owned by you (seller) or your customer (buyer). In light of this, Boost offers three convenient ways to split the cost of financing:
- Seller Pays: In order to satisfy customers, the seller can cover the financing charges.
- Buyer Pays: The seller transfers the entire financing fee to the customers, offering them flexibility in payment options — in this case, you receive capital at almost 0% financing charges.
- Split 50/50: To balance the cash flow difficulties and customer retention, the seller can split half of the fee with the customer.
Ratio Trade is an innovative form of growth financing that allows businesses to quickly convert annual and multi-year contracts into instant cash. This method involves no debt or dilution, with approval taking less than 48 hours and capital arriving in your bank account in just a few days.
Recently, Ratio has funded over $2 Million in cash to Nextech3D.ai in non-dilutive funding.
How Does it Work?
Ratio Trade works in five easy steps:
Step 1: Connect your banking, finance, and billing systems using the Ratio Portal.
Step 2: Ratio will review your submission and respond with approval or rejection within 48 hours.
Step 3: Upload your annual or multi-year contracts to the portal.
Step 4: Receive an indicative cash offer from Ratio for each contract.
Step 5: Accept the offer to have the funds deposited into your account.
Benefits of Ratio Trade
For SaaS and hardware businesses, Ratio Trade provides various growth opportunities, including:
- Equity Dilution Prevention: Trade enables companies to avoid equity dilution, maintaining control over their shares.
- Automated Reporting: This platform automates cash reporting, saving time and optimizing business processes.
- Debt-Free Cash Access: Trade provides immediate cash access without incurring debt, enhancing financial flexibility.
- Extended Runway with Deferred Payments: The platform allows for up to 12-month deferred payments, aiding in better cash flow management and long-term planning.
Ratio charges a discount rate between 1% and 15+% on the value of a contract. For example, with a 15% rate on a $1,000,000 contract, the client receives $850,000 upfront.
Key Differentiators - What Sets Ratio Apart?
- Ratio facilitates customer financing with a capital pool exceeding $400 million.
- Unlike traditional venture capital, Ratio provides quick access to growth capital without the limitations of equity dilution or loss of control.
- Sellers can select contracts for sale based on their specific needs.
- There is no limit to the number of offers sellers can make.
- Seamless integration ensures quick approval and onboarding.
- Ratio enables robotics firms to offer 'Robotics-as-a-Service' models, giving them a competitive edge in an industry with high capital requirements.
- Robust security measures offer adequate privacy protection, such as network traffic encryption via TLS v1.3 via RSA-2048.
Have questions? Check out our FAQs page!
2. SaaS Capital
Based in: United States
Sector: B2B SaaS
Amount of funding: $2 million to $20 million
Who is Eligible for Funding?:
- Minimum annual revenue of $3 million ($250k in MRR)
- At least 85% retention
- Headquarters in the United States, the United Kingdom, or Canada
- Eligibility does not require profitability or venture capital
SaaS Capital is a B2B SaaS funding provider. It eliminates equity dilution and loss of control for SaaS enterprises by emphasizing flexibility and a reduced total cost of capital.
It has helped over 60 clients and deployed about $210 million in growth debt by pioneering lending options based on anticipated recurring revenue. The platform offers a tailored process that leverages SaaS expertise and research data to facilitate funding within five weeks.
SaaS Capital — How Does it Work?
SaaS Capital is quite thorough in its underwriting process; here is what the engagement with SaaSCapital looks like:
Stage 1: Introductory Phone Call - A first call, lasting approximately 20 to 40 minutes, to assess initial compatibility.
Stage 2: Documentation Request - If a fit is identified, SaaSCapital requests financial and business materials from you.
Stage 3: Detailed Follow-Up Call - A longer call, ranging from 45 to 90 minutes, is scheduled to review the submitted materials thoroughly and discuss your business in depth.
Stage 4: Term Sheet Issuance - Provided there's a strong mutual fit, SaaSCapital issues a term sheet within one to two weeks following the initial call.
Stage 5: Closing - This final stage typically spans 4 to 5 weeks and includes an on-site meeting at your office, more rigorous accounting diligence, a technical review, and the drafting of legal documents, culminating in the funding.
- Repayment lengths of 5 years or more, exceeding the standard two-year commitment.
- Provides 5x to 8x Monthly Recurring Revenue (MRR), dynamically growing with MRR growth.
- No balance-sheet limits, resulting in more usable capital to grow the SaaS business's runway.
- Generous funding with flexibility.
- Lower total cost of capital.
- No equity dilution or loss of control in SaaS enterprises.
- Quick funding.
- Eligibility without the requirement of profitability or venture capital.
Credit facility pricing is derived from a combination of three factors:
- An interest rate of 12% to 14% on borrowed funds.
- A 1% to 1.5% commitment fee.
- A nominal penny warrant.
3. Lighter Capital
Based in: United States
Amount of funding: Up to $4 million
Who is Eligible for Funding?:
- Companies with headquarters or subsidiaries in the United States, Canada, or Australia.
- Monthly Recurring Revenue (MRR) of more than $15,000.
- Profitability is not required, although a varied customer base is preferable.
Lighter Capital specializes in non-dilutive financing options suited for technology companies, providing a path for growth without the requirement for personal guarantees, covenants, or the transfer of equity and board seats.
Lighter Capital has funded over 400 startups through 900 rounds and a total investment of more than $400 million.
Lighter Capital — How Does it Work?
To work with Lighter Capital, you need to follow these 4 steps:
Step 1: Fill out a simple application in less than 3 minutes by answering a few questions about your company.
Step 2: Meet with an investment advisor to discuss your financial requirements, assess qualifications, and compare Lighter Capital to alternative capital sources.
Step 3: Connect your financials to establish the optimal financing plan, your qualification amount, and the process requirements.
Step 4: Understand your payment plan and obtain information on when funds will be deposited, which is usually within a few days.
- Lighter Capital, unlike traditional financing, provides funding without asking for personal guarantees or imposing covenants.
- Lighter Capital, being one of the major providers of non-dilutive capital, brings extensive experience and resources to its funding options.
- No equity is diluted.
- Adapt funding to your needs.
- Extend payment terms to three years, with the possibility of additional rounds/tranches.
- No need for personal guarantees, warrants, or restrictive agreements.
- Benefit from collaboration with a devoted investment advisor.
- Streamlined application process: Avoid pitch decks, presentations, and valuation negotiations.
Payments are based on monthly cash flow.
Ratio — Your Trustworthy RRF Solution
Ratio offers embedded finance through Boost and true sale financing through Trade. Both options cater to diverse business needs.
Boost attracts customers with a BNPL feature and integrates seamlessly into your sales workflow — simplifying payment handling. Financing costs are flexible, with sellers, buyers, or both sharing responsibility, while Ratio bears the underwriting risk.
Trade allows businesses to convert future contracts into immediate upfront cash, assuring consistent and reliable capital for quick expansion within hours.
Regardless of whether Boost or Trade aligns better with your business strategy, Ratio is your trustworthy partner. Their user-friendly interfaces facilitate your financing requests in minutes — providing a hassle-free experience.
So, if you’re ready to fuel your business growth without diluting equity or losing ownership — Ratio is here to help. Register here for free!