August 30, 2021

The alternative lending space: A key component to SaaS business growth


You already know that you have a game-changing SaaS product. You were proactive in working out initial bugs and listening carefully to the feedback from beta testers. Even better, some of your early marketing and sales tactics landed you paying customers.

Next thing you know, you're handing in your two weeks' notice at your full-time job. Those early customers gave you the confidence you needed to jump head-first into entrepreneurship. The time has come: you’re ready to scale your SaaS company to enterprise level and join the ranks of Slack, Trello, and HubSpot.

And that's when the growing pains start—you're running out of money as your customers start to flatline. You know it’s imperative to get more eyes on your product, but bootstrapping can only get you so far. Your personal savings are dwindling.

If your early sales and marketing tactics worked, the smartest thing you can do is invest in activities that are actually driving business. Finding capital would allow you to out money behind these activities to grow visibility, win over more customers.

For most SaaS founders, the problem is getting funding from the banks, who lend in a more traditional manner. They’re apt to fund businesses that are already profitable, and tend to stick their noses up at startups (now matter how promising). To get a bank loan, you must have a good debt history and own enough assets as collateral, should you default on your loan. Not every SaaS founder can check off these two boxes.

Before you start updating your CV, let’s peer deep into the non-bank, alternative lending space to get your SaaS product over its awkward growth phase.

The top alternative lending spaces for SaaS founders

Tech incubators 

Business incubators are a popular option for SaaS companies and startups. Incubators are a paid membership that include mentorship, networking, and training opportunities. Mentorship and training programs are often free and can last months or even years. Even better, incubators are a fantastic place to meet other software founders with similar challenges to you. Together, you can solve common issues and come up with industry-shaping solutions.

There’s even the possibility of finding funding through incubators, too. The downside with incubator funding is that it mostly just connects you to funding sources. From there, you’ll still have to do the legwork to unlock capital funds

Joining a tech incubator doesn’t guarantee you money or instant success. Instead, the main benefit is the business community and mentorship opportunities that can slowly help build your business.

Government funding

Government funds are meant to help stimulate small to medium-sized businesses as they grow. Over recent years government funding has become increasingly hard to find.

Government funding can be used for things like R&D, funding raw materials, and lending for promotional activities. Unfortunately, the application process can be long, drawn-out, and cumbersome. In the event you accept government funding, you may be prone to costly tax audits, and still have to wait an extended period to receive your cash. 

Funding Portal is an excellent lending resource for scaling SaaS companies in Canada, the United States, and throughout parts of Europe.

VC Funding

If you're comfortable pitching your product to a room full of sharp-shooting business folk, it's possible that VC firms (or venture capitalists) could be your way to secure some money. As long as your product is lucrative and highly marketable, you could get funding in exchange for partial ownership of your business.

Perhaps the biggest drawback with VC funding is that since its inception in the 1950s, not much has changed. VC funders still tend to be wealthy white men in suits and ties. Not only has bias been found to play a role in funding decisions, it's worth questioning whether a 1950s model can keep pace with today’s remote workspaces. As a SaaS founder pitching for VC capital, you want to make sure that the investors understand your product. If you have a niche product, be sure the firm sees your niche as a profit-driver rather than a hindrance.

Angel investors

Made popular in the early 2000’s, angel investors are similar to venture capitalists. Rather than being a group of investors, they are single, wealthy individuals that will lend you money in exchange for partial ownership of your business. 

Because many angels are entrepreneurs themselves, they may be more likely to take their time to understand your SaaS product. The downside of angel investors is that on average, they lend less money, and funding can take an excruciating amount of time.

Crowdfunding, crowdlending, and connections

Crowdfunding platforms like Indiegogo, GoFundMe, and Patreon, are a great option for founders who aren’t afraid to openly ask for funding. In some cases, these funds don’t even have to be repaid.  Certain online crowdlending businesses do require equity in your business, so do your research before deciding on a single platform.

Like with government funding, asking for donations isn’t an automatic ask-and-receive process. It’s up to you on how hard you campaign for your cash. 

If your network isn't filled with high-net-worth individuals, you'll need to ramp up on expanding your network of potential lenders. You can use networking sites like LinkedIn or attend business conferences to try and rub elbows with those that can help fund your dreams.

Revenue-based financing

Also known as revenue-based investing (RBI), RBI is the diamond-in-the-rough in the alternative lending space. In this lending model, funders buy your future sales today. If you're confident in your business idea and already have paying clients, this may be the perfect solution for you. Revenue-based financing allows you to partner with the lender to get your business in front of your target market and grow your annual subscribers. RBI can be an extremely flexible option for SaaS founders and help you get over those awkward growing pains. 

According to the RBI, State of the Industry report by Bootstrapp Inc.: