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Finance for Tech Companies | 10 Unique Options
Technology companies sit in a unique and modern financial position that comes with its own funding challenges.
Often, a tech company requires significant upfront capital and investment to get off the ground, with considerable research, development, and marketing needs.
With a business model that means profitability comes later in the business lifecycle than in many other industries, and a structure that has fewer tangible assets than may be expected with a traditional company with such an investment requirement, tech companies can find it difficult to secure traditional loans.
Clifton Private Finance specialise in helping tech firms at all stages of their growth and development to find the right debt finance solutions that enable visionary entrepreneurs fund business growth without relinquishing control.
Effective Debt Finance for Startup Tech Companies
The challenges present for startup companies are clear:
- Development costs need to be covered (often for many months) before any revenue will be generated. This includes staffing costs as well as premises needs and equipment purchases.
- Cash flow becomes a primary concern. Even once income is building, it’s essential to maintain a secure cash flow management process with funding options that can be leveraged if necessary.
- Lenders will need to be convinced to provide finance based purely on forecasts rather than trading history.
Solutions worth considering include:
Revenue-Based Financing
Without a guaranteed level of revenue and with other demands on your business cashflow, a traditional business loan can put undue stress on your monthly finances. Revenue-based financing (RBF) offers a model where the monthly repayments are made as a percentage of turnover, providing flexibility that means your debt obligation is in line with your cash flow.
This sort of funding is excellent for subscription-based models, such as SaaS. Early growth is not put under stress and when the number of subscribers increases, the repayments grow accordingly. This means the debt is repaid efficiently.
Startup Loans
Startup loans are designed to be provided based on your business plan and forecasting, rather than any existing credit record. They are specifically designed for businesses in their first few years to provide the startup capital required for investment to get off the ground.
Startup loans are typically unsecured, so they provide funding without any need for you to have company assets as collateral, although for significant funding you'll likely need to be a homeowner and have 2-years of profitable trading to qualify.
Asset Finance
Asset finance solutions, such as equipment leasing, provides a way to spread to cost of essential equipment and technology that your business needs to develop its products and services. Specialist asset finance lenders can help you secure niche cutting edge equipment for long-term rental, giving you access to the very best kit without needing to find the money to buy it outright.
R&D Tax Credit Financing
R&D Tax Credits are an important financial tool for tech companies, providing support from the UK government to drive innovation in the domestic market. The system provides a tax rebate that can be extremely beneficial - however, waiting for the claim to be processed and applied can mean the funds are many months away.
Tech Finance for Expansion
Once the business is working well and past the initial startup stage, your focus becomes one of growth. This involves:
- Needing to expand your team, often rapidly, to meet the increasing needs of your customer base.
- Investing significant capital into marketing for both domestic and international growth.
- Dealing with unexpected gaps in cash flow that can arise from delayed customer payments or market volatility.
- Funding ongoing product updates as well as the development of new services and ideas.
- Improving internal company infrastructure, administration, and practices.
With established recurring revenue in place, it is significantly easier to secure strong debt finance solutions.
These may include:
Growth Capital Loans and Lines of Credit
Designed to fulfil the needs of rapid growth businesses, growth capital loans and growth capital lines of credit are business finance solutions that are tailored to your business’s financial profile and expansion requirements.
These can include both secured and unsecured business loans, large-value revolving credit facilities, and asset finance solutions that utilise both your proven growth trajectory and mid- to long-term forecasting to secure significant capital.
Receivables-Based Lending and Invoice Finance
Invoice finance provides a way for B2B tech companies to utilise their accounts receivables to obtain capital immediately rather than being forced to wait lengthy invoice terms.
Typically structured as a revolving credit facility, invoice finance and other receivables-based lending solutions can provide a secure secondary backup to ensure cash flow never suffers due to slow-paying clients.
Invoice finance is especially useful for B2B companies that have to accept long payment cycles from larger businesses leveraging their power to dictate terms.
Venture Debt
Originally conceived as a debt solution for companies that raised venture capital in the early stages to gain access to additional capital for growth without another round of dilutive investment, venture debt is now seen as a quality debt finance solution for tech companies regardless of whether they have or haven’t previously obtained venture capital.
Unlike traditional loan structures, venture debt is extremely flexible, allowing companies to raise larger volumes of capital without tying themselves to a rigid repayment structure. Venture debt allows businesses to:
- Structure lower monthly repayments and longer terms than standard commercial finance.
- Utilise an early period where the debt is interest-only, allowing faster growth before principal repayments are put in place.
- Include optional warrant agreements, allowing lenders a small equity stake that is far less dilutive than full-scale venture capital.
Venture debt sits between traditional loans and equity finance, providing the flexibility of debt finance with a growth-centric attitude born from the equity sector - all without losing control of the business.
Structured Finance for Long-Term Success in the Technology Sector
At the corporation level, tech companies are looking to consolidate their global position. While this can be done through public offerings, corporate-level debt finance offers an alternative position, keeping the business in private ownership.
Challenges at this level include:
- Maintaining financial efficiency while managing large-scale operations.
- Seeking mergers and acquisitions to continue expansion, eliminate competition, and solidify market share.
- Reducing costs and restructuring debt to improve cash flow.
High-level debt finance solutions include:
Debt Advisory and Restructuring
Working with the Clifton Private Finance debt advisory service provides opportunity for large-scale debt restructuring.
Financial efficiency is key at this level. By consolidating loans, leveraging assets, and restructuring with a view to reduce the costs of debt finance, the business can lift the weight of legacy debt obligations and drive forwards with a renewed financial position.
M&A Finance
Mergers and acquisitions offer expansion into new markets, the ability to obtain key talent in all areas of the business, a stronger position in your sector, and a joining of like-minded products and services for a stable future.
Specialist mergers and acquisition (M&A) financeprovides tech businesses with the capital they need to engage in the complexities of the process. To understand more about the range of debt finance products that can propel your tech business to even greater heights, read our guide to M&A finance.
IPO Finance
Should the decision be made that at this level it is time to move away from private ownership and open the company up for an initial public offering (IPO), finance exists to help develop the business portfolio and ready it for sale.
Learn more about IPO finance.
How Clifton Private Finance Helps Tech Companies Secure the Right Funding
Growing your tech business needn’t be about the lure of outside investment. The right specialist finance, structured in a way that supports your business goals, will give you the capital you need and the power your business thrives on, without you having to give up your control or vision.
With Clifton Private Finance as your advisory partner, you can drive your business to success from a startup level to a global entity.
We:
- Work with a wide range of specialist lenders who understand the particular challenges of a tech business.
- Offer tailored finance solutions that consider your position and current stage of growth.
- Help you get funding quickly, with a thorough understanding how fast-paced the needs of the tech industry can be.
- Provide comprehensive and holistic debt solutions that combine traditional bank loans with more modern niche products to give your company the flexibility you need to thrive.
Working with Clifton Private Finance will ensure you have the support you need to navigate the complex technology-aligned debt finance landscape.
