SaaS Finance Options: RBF vs Venture Debt vs Invoice Finance

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.[4]

For example, A standard RBF deal might give you £100,000 today, capped at 1.5x or 2x.[3] You’ll keep paying them a cut of your revenue until they get £150,000 to £200,000 back.

The benefit of Revenue-Based Finance for bootstrapped founders is that you don’t need venture capital to get it. Plus, if your revenue drops or hits an unexpected low, your repayments will 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[5] that have closed Series A or later. Under a venture debt arrangement, 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. Warrants give the lender the right to buy a portion of your company’s stock later on, so it’s not a completely equity-free option.

Invoice Finance

Invoice finance is where a business borrows money against unpaid customer invoices. 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 of invoice financing:

• Invoice factoring: Where the lender collects the money directly from your client and manages your sales ledger, and the client knows a third-party is involved.

• Invoice discounting: Where your business handles collections, and your clients don’t know you are using a lender.

You may also hear the term “selective invoice financing,” which means you only take out loans against specific invoices, rather than handing over your entire sales ledger.

Many founders skip over this type of SaaS finance because they think it’s only for B2B companies with physical deliverables, or they view it as a last-resort measure for struggling, cash-strapped businesses.

But invoice finance can be a good option for SaaS companies because it unlocks cash trapped in unpaid invoices or enterprise contracts. It’s ideal for funding product updates or marketing efforts because it provides immediate working capital without you having to give away equity or take on long-term debt.

Check out our guide on how invoice finance actually works if you want to see the step-by-step process

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 and funding future growth. With either of these arrangements, your cap table stays clean, and you have much more control over your repayment terms.

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. It may give you access to a larger lump sum, but if payroll is looming or you’ve got supplier bills to pay, venture debt won’t be much use.

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 when they want to grow.

If your company is post-series and you need a large lump sum to extend your runway and fund your long-term vision for the business, 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.

Just like our manufacturing clients who use asset finance for heavy machinery and invoice finance for wages, SaaS founders do best when they match the right tool to the right problem.

SaaS Finance FAQs

Can I use invoice finance if I only sell monthly subscriptions?

Usually, no. Lenders need commercial invoices with defined payment terms to set up an invoice finance arrangement. If you only process automated monthly credit card charges, RBF will be a much better fit.

Does using SaaS finance hurt my chances of raising VC later?

Not at all. Investors actually like off-balance-sheet working capital facilities. It shows them you know how to manage cash flow and protect your equity. The only time VCs get nervous is if you’ve stacked up massive amounts of high-interest debt.

Will my customers know I’m financing their invoices?

Not if you don’t want them to. If you use confidential invoice discounting, you still handle all your own credit control. The client pays into your business account in your name, so the financing stays totally private.

Is RBF always more expensive than invoice finance?

Not necessarily. It all depends on how quickly you turn the capital over. Invoice finance pricing is purely transactional. RBF charges a multiple on the principal. If your revenue skyrockets, your fixed percentage repayments will be more expensive.