5 Key Solutions for SaaS VARs to Overcome Financial Hurdles

As a SaaS Value Added Reseller, you're no stranger to the financial challenges of the industry. 

Issues such as managing cash flow, tackling high costs of acquiring customers, and scaling effectively in a fiercely competitive market are all part of the job. The risk of vendor lock-in also affects your finances, highlighting the need for financial agility.

However, there's a positive outlook ahead. The SaaS VAR market is on an upward trend, with a projected CAGR of 6.1% from 2023 to 2030. This growth potential is substantial, even amidst financial hurdles.

But, tapping into this growth requires scalable and innovative financial solutions that can adapt to the dynamic SaaS VAR environment.

Dive into this article for five essential financial solutions that can help you overcome common financial hurdles and drive success in the SaaS world.

5 Top Financial Solutions for SaaS Value-Added Resellers

Each SaaS VAR enterprise is unique, with varied financial requirements as well as business metrics. That's why examining a range of financial solutions is crucial.

Let's take a closer look at some leading financial tools and strategies that can propel your business to success.

1. Embedded Financing 

Embedded financing transforms how SaaS VARs operate, integrating financial products like Buy Now Pay Later (BNPL) into payment portals to simplify customer purchases. 

Previously, incorporating financial services meant establishing an expensive and labor-intensive FinTech division. Embedded finance revolutionizes this approach, allowing digital platforms to offer financial options to buyers more directly and efficiently.

Integrating embedded finance solutions creates a seamless experience that most buyers won't even realize they're interacting with an additional financial layer. It provides a smooth, hassle-free journey, consolidating everything in one convenient place.

Benefits of using Embedded Financing:

  • Enables immediate payment, improving cash flow and reducing wait times for customer payments.
  • Enhances customer experience by offering a seamless, integrated financing option.
  • Provides a competitive edge over others.

Disadvantages of using Embedded Financing:

  • Integrating financing into the sales process adds operational complexity, requiring robust systems and processes for managing loans, payments, and defaults.
  • It involves credit risk. VARs must assess the creditworthiness of customers, which can be complex and resource-intensive.

Despite these challenges, the embedded finance market, valued at $65.46 billion in 2022, is projected to grow at a 32.2% CAGR through 2030. A strategic way to leverage this trend is through Ratio Boost, facilitating embedded financing for SaaS VARs.

With Ratio Boost, SaaS VARs can offer financing at the point of sale. It means sellers can provide their buyers with flexible payment options while receiving the full value of their contracts immediately.

VARs have the flexibility to manage financing costs in various ways: they can absorb them, pass them to the buyer, or split the cost. For instance, on a $200,000 contract with a $20,000 cost, the VAR could pay the entire amount, share it with the customer, or let the customer pay the total cost. 

What sets Ratio Boost apart is its ability to customize financing to meet the specific requirements of both sellers and buyers. With its focus on handling underwriting risks and evaluating customer creditworthiness, Ratio Boost significantly reduces credit risk. 

This flexibility enhances customer relationships by offering tailored financial solutions and contributes to lowering customer acquisition costs. It also eliminates the need for personal guarantees, thereby strengthening the VAR's market presence.

Another significant benefit of Ratio Boost is its access to over $400 million in capital and seamless integration into your websites, CPQ, and CRM sales processes.

To fully understand how Ratio Boost can transform your business, explore the possibilities here.

Source - Ratio Boost

2. True-Sale Based Financing

True Sale-based Financing (TBF) is a simple transaction where a SaaS VAR transfers assets that generate cash, such as accounts receivables, intellectual property, and contracts of varying lengths, to a buyer. 

This exchange provides the seller with immediate cash without creating debt or reducing the ownership.

When considering TBF for your business, keep these five critical factors in mind:

  • Identification of Assets: Identify salable assets, like receivables or inventories. Make sure they're appealing to buyers.
  • Contract Eligibility: TBF requires financial assets or current customer contracts.
  • Cost of Financing: TBF expenses depend on the contract details and the possibility of non-payment.
  • Impact on Balance Sheet: Selling assets increases cash flow but may reduce long-term asset profitability, especially if they generate revenue.
  • Purpose of Funds: To ensure that you are making the most of quick cash, aligning its usage with your business goals is vital.

Benefits of using True-Sale Based Financing:

  • Boosts cash flow by converting illiquid assets on your balance sheet into liquid cash through a direct sale to a buyer
  • It differs from traditional loans and does not add new liabilities to your balance sheet.

Disadvantages of using True-Sale Based Financing:

  • Choosing and valuing assets for True-sale Based Financing is a complex and time-intensive process, requiring a thorough evaluation to meet specific criteria. Market fluctuations and individual characteristics can impact asset valuation.
  • Additionally, there is a limited availability of providers offering TBF, with Ratio Trade being one of the few.

Ratio Trade provides a unique solution for SaaS VARs, transforming contracts into immediate cash. An example of this is Nextech3D.ai, which received $2 million upfront from Ratio for their future invoices and contracts.

The process is efficient, with approvals in just 48 hours, no equity dilution, minimal loan restrictions, and straightforward reporting.

Ratio charges a discount rate for accelerating future cash flows, which varies from 1% to over 15%, depending on the level of risk, the contract's length, and the repayment terms.

For instance, a VAR with a $1 million, 24-month contract at a 12% discount rate would receive $880,000 upfront from Ratio.

A significant advantage for VARs using Ratio Trade is the payment structure, requiring payment only when customers fulfill their invoices, potentially leading to no payments for up to a year.

To know more about Trade's capabilities, schedule a demo today.

Source - Ratio Trade

3. Equity Financing

Equity financing for SaaS VARs involves raising capital by selling company shares addressing short-term and long-term financial requirements. This approach injects cash into the business, providing financial stability over a certain period. 

In return for their capital, investors may receive board representation, influence in company decisions, a share in future profits, or the potential for capital gains on selling their shares.

Benefits of Equity Financing for SaaS VARs:

  • Eliminates regular repayment obligations, which benefits SaaS VARs with variable revenue streams.
  • Equity investors, such as venture capitalists and angel investors, can provide larger funds than loans, supporting greater growth and expansion.
  • Preserves a company's credit score, supporting its financial health and flexibility

Disadvantages of Equity Financing for SaaS VARs:

  • Selling shares reduces ownership control, potentially impacting business decisions.
  • Diverse stakeholder visions can lead to conflicts in decision-making.
  • Securing equity investment is often more time-consuming than obtaining a loan.

Equity financing promotes growth but impacts ownership and control, so SaaS VARs should consider their circumstances, growth stage, financial health, and long-term goals when making this choice.

  1. Debt Financing

With the debt financing market expected to grow by $16.17 billion from 2022 to 2026 at a CAGR of 9.66%, it's essential to understand what debt financing entails. 

Debt financing is the strategy of securing capital by borrowing money from external sources, such as banks or investors, with the obligation to repay the borrowed amount over time with interest.

In contrast to equity financing, which entails trading ownership stakes for funding, debt financing enables VARs to retain full control over their business while accessing essential financial resources to support business expansion and technological investments.

Benefits of Debt Financing for SaaS VARs:

  • Debt financing preserves VAR ownership without dilution.
  • Interest payments on debt can be tax-deductible, reducing borrowing costs.
  • Fixed repayment schedules simplify financial planning.

Disadvantages of Debt Financing for SaaS VARs:

  • Regular debt payments strain cash flow, especially for businesses with volatile revenues.
  • Collateral may be necessary for some debt financing, risking asset seizure if repayment fails.
  • High-interest costs may arise with lower credit ratings and elevated interest rates.
  1. Peer-to-Peer (P2P) Lending

Peer-to-peer (P2P) Lending is a modern financing approach that lets SaaS VARs secure funds directly from individual investors or groups, bypassing the conventional bank route. This model thrives on online platforms that link borrowers with potential lenders.

P2P lending covers a wide spectrum of loans, including both secured and unsecured options. It works through a simple process on a specialized online platform:

  1. Borrower applies for a loan online.
  2. The platform assesses risk and assigns interest rates.
  3. Approved borrower gets loan options from investors.
  4. Borrower selects an option.
  5. Pays interest and repays principal over time.
  6. Platform charges fees to borrowers and investors.

Source - Corporate Finance Institute

Benefits of P2P Lending for SaaS VARs:

  • Easier access with fewer requirements than traditional banks.
  • Flexible terms and interest rates to match cash flow.
  • Swift approval and funding compared to banks.
  • Potential for lower interest rates based on credit and competition

Disadvantages of P2P Lending for SaaS VARs:

  • VARs with weaker credit histories may encounter higher interest rates than traditional loans.
  • Loan acquisition relies on individual lenders' interest, which may be less dependable than institutional lending.
  • Certain P2P platforms may hide fees, increasing borrowing costs.

Maximize Your SaaS VAR's Growth Potential with Ratio

As the VAR sector is on track to reach a massive $6.38 billion by 2030, highlighting the importance of sharp financial tools for SaaS VARs. Handling financial challenges like cash flow, scaling costs, and growth opportunities is crucial. With custom strategies, SaaS VARs can improve cash flow, drive innovation, and sustain growth.

Staying ahead in a market constantly changing and updating with new technology means embracing cutting-edge financial solutions. 

Ratio emerges as a standout finance ally, offering unique services like Ratio Boost for Embedded Financing and Ratio Trade for True-Sale Financing.

Ratio Boost offers a new perspective on the Buy-Now-Pay-Later (BNPL) model, giving buyers flexible payments while ensuring VARs get paid upfront. This innovative take on BNPL allows sellers to offer various payment options, with Ratio advancing most of the contract value immediately.

Meanwhile, Ratio Trade is a quick way for VARs to convert future asset revenue into cash. This non-debt, non-dilutive approach, free from customer involvement, puts all underwriting risks on Ratio, letting your business expand without cash flow worries.

Choose between Ratio Boost or Ratio Trade, but either way, Ratio stands as a reliable and effective partner. Their user-friendly platform makes sure your financial needs are met swiftly and efficiently.

Take advantage of Ratio's financial services to lift your business. 

Register with the app today and set off on a path to greater growth and achievement!

Tags:
Finance
SaaS
published on
January 4, 2024
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