SaaS Debt Stack

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Growth term loans for SaaS

Multi-year senior debt for capital-efficient SaaS companies, underwritten on recurring revenue and retention rather than on who your investors are.

Best for
Capital-efficient SaaS at roughly $2M+ ARR
Typical size
Commonly a multiple of MRR
All-in cost
Low-to-high teens, plus fees
Dilution
None to modest warrants, by lender
Covenants
Financial covenants are common
Time to fund
4–8 weeks

What it is

A growth term loan is a fixed amount of capital, drawn up front or in tranches, repaid over a set term, typically two to four years. It’s usually senior secured: the lender holds a lien on company assets and is first in line to be repaid.

Unlike bank venture debt, many growth lenders don’t require a recent VC round. They underwrite the business itself: recurring revenue, retention, gross margin, growth efficiency and how much runway the company has.

Who qualifies

Lenders differ, but most look for:

  • Recurring revenue of roughly $2M ARR or more
  • Strong retention. Net revenue retention near or above 100% matters more than headline growth.
  • Healthy gross margins, typically 70%+ for software
  • A credible path to cash-flow breakeven that doesn’t depend on the next equity round
  • A clear use of funds: hiring, go-to-market, product, or an acquisition

Many lenders also have sector preferences. Some avoid consumer-facing software or crowded horizontal categories because retention is harder to predict.

What it really costs

The full cost has four parts:

  1. Interest. Fixed or floating, often quoted as a spread over prime.
  2. Fees. Origination, commitment, and sometimes an end-of-term or prepayment fee.
  3. Warrants. Some lenders take a small equity option; others take none. Ask, and model what it’s worth if the company does well.
  4. Covenants. Minimum cash, minimum revenue, or limits on other debt. They cost nothing until you miss one.

Worked example

A company with $6M ARR borrows $1.5M over 4 years at 13% interest with a 2% upfront fee and no warrants. Rough total cost is the interest paid over the term plus $30K in fees. Compare that against the equity alternative: selling 10% of a company that later exits for $60M costs $6M of founder and investor proceeds.

Illustrative only. Real terms depend on the lender and the company.

Pros and cons

Pros

  • Little or no dilution, no board seat
  • Multi-year term matches growth investments that take time to pay back
  • Available to companies without institutional investors

Cons

  • Fixed repayments regardless of how the quarter went
  • Covenants constrain how you run the business
  • Takes weeks of diligence, not days

Red flags in a term sheet

  • Covenants set so tight that a normal bad quarter triggers default
  • Material adverse change clauses without clear definitions
  • Large prepayment penalties if you exit early
  • Warrant coverage that’s out of line with the loan size

When it’s the wrong choice

  • You need the money to cover losses with no clear path to breakeven
  • Retention is weak or unproven
  • You need capital within days, not weeks

Questions to ask any lender

  1. What happens if we miss plan by 20%? What have you done in that situation before?
  2. Are there warrants, and what do they convert into?
  3. What does it cost to repay early, including on a sale of the company?
  4. How many of your borrowers have defaulted, and what happened?

Last reviewed October 2026. Education only, not financial advice. How we research.