If you're a SaaS founder, you'll know that scaling often requires an injection of cash, but choosing the right finance option can feel daunting.
You may not want to lose a fixed amount of your monthly income to repayments, hand over your sales ledger to a third-party lender, or give away chunks of your equity. In this article, we'll compare the three most popular SaaS finance options — Revenue-Based Financing (RBF), venture debt, and invoice finance — to help you decide which one is right for your business.
Common SaaS Finance Arrangements
The most common SaaS finance options are RBF, venture debt, and invoice finance. The main difference between these arrangements is their payment terms.
Revenue-Based Finance means the lender gives you an upfront sum of money in exchange for a fixed percentage of your future gross revenue. You make these monthly instalments until you reach a predetermined "payment cap," which is usually 1.5x or 2x the original loan.
Venture debt is more like a traditional loan, but it's specifically tailored to early- to mid-stage startups with high growth potential. Lenders require fixed monthly payments regardless of your business performance, alongside stock warrants.
Invoice finance allows businesses to unlock cash tied up in unpaid invoices by advancing 80-90% of the invoice's value and paying the remainder, minus a fee, when the customer pays the bill.
Market Comparison
| Metric | Invoice Finance | RBF | Venture Debt |
|---|---|---|---|
| Funding Amount | £50k to £1M+ (scales with invoiced AR) | £50k to £500k typically | £250k to £5M+ |
| Cost Structure | 0.5% to 5% per transaction | 12% to 30% APR equivalent | 8% to 15% interest + warrants |
| Speed to Cash | 24-48 hours | 24-48 hours | 4-8 weeks |
| Dilution | Zero | Zero | 0.5% to 2% (via warrants) |
| Who Qualifies? | B2B companies with invoiced contracts | Any SaaS with consistent MRR | VC-backed companies |
| Repayment Method | Automatic when client pays invoice | Fixed percentage of monthly revenue | Fixed monthly loan repayments |
Revenue-Based Finance (RBF)
Revenue-Based Finance allows businesses to raise capital by giving investors a share of their ongoing gross revenue, typically around 2-10%. It's different from venture debt and equity financing because investors don't hold ownership and there's no interest on outstanding balances.
For example, a standard RBF deal might give you £100,000 today, capped at 1.5x or 2x. You'll keep paying them a cut of your revenue until they get £150,000 to £200,000 back.
The benefit is you don't need venture capital to get it, and if your revenue drops, your repayments automatically decrease. The downside is that if you grow exceptionally fast, your repayments will accelerate, which could temporarily hinder your operational cash flow.
Venture Debt
Venture debt is a SaaS finance option for VC-backed companies that have closed Series A or later. A lender gives you a large lump sum, which you then repay through fixed monthly instalments. The cost typically includes a standard interest rate plus warrants — the right for the lender to buy a portion of your company's stock later on.
Invoice Finance
Instead of waiting 30, 60, or even 90 days for a client to pay, invoice financing lets you unlock 80-90% of the cash upfront. There are two main types: invoice factoring, where the lender collects the money directly from your client, and invoice discounting, where your business handles collections and your clients don't know a lender is involved.
Many founders skip over this type of SaaS finance because they think it's only for companies with physical deliverables, or view it as a last-resort measure. But invoice finance can be a good option for SaaS companies because it unlocks cash trapped in unpaid invoices or enterprise contracts without giving away equity.
The Key Benefits of RBF and Invoice Finance for SaaS Founders
One of the main benefits of an RBF or invoice finance facility is that they're completely non-dilutive — you'll keep your equity intact while fixing current cash flow gaps. RBF and invoice finance are also fast, with some invoice finance facilities advancing funds in 24-48 hours. With venture debt, the legal wrangling and investor sign-offs can take weeks.
Building a Hybrid SaaS Finance Strategy
The best thing about these three SaaS finance options is that you're not limited to choosing just one. Many smart founders layer these funding types together to form a hybrid strategy that works for their unique situation.
For example, a bootstrapped team might use selective invoice financing to temporarily cover high onboarding costs for a new client and then opt for a small RBF facility further down the line to fund ad spend. If your company is post-series and you need a large lump sum to extend your runway, it might make sense to pull down money in venture debt while using a confidential invoice discounting facility to quietly manage your cash flow with 90-day payment enterprise clients.