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Don’t Get Funded by Short-Term Loans
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Don’t Get Funded by Short-Term Loans

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Monique Morden
Monique Morden

Recent marketing campaigns by debt providers have used some well-placed asterisks to grab the attention of SaaS founders who may be in the market to get funded.

TIMIA examined the terms of some of the short-term loans on offer to SaaS companies today and came to the conclusion that the initial interpretation of the words “get f***ed” may be more accurate!

True Cost of Upfront Cash (aka MRR to ARR Loans)

One loan on offer by debt providers promises founders that they can convert their monthly recurring revenue (MRR) into upfront cash—or instant payout—that is equivalent to one annual recurring revenue (ARR) payment.

This typically means that a founder can take a contracted payment stream of MRR and convert it to upfront cash that approximates an ARR payment. In other words, the lender pays founders 10 months of MRR today in exchange for 12 months of MRR deposited directly into the lender’s account.

A simple calculation of 2/12 would misleadingly show a 16% interest rate on the finance. However, the actual amortized interest rate is somewhere between 41.5 and 51.4%!

If you’re interested in the math, we broke it down recently in this blog post.

True Cost of Short-Term Loans

Short-term loans are another type of financing offered by some debt firms. Instead of interest, founders pay a flat fee. For example, if a founder takes $100,000, they pay a $6,000 flat fee. In this scenario, it could be assumed that the equivalent interest rate is just 6%.

However, if you pay the loan back in 6 months, the actual amortized interest rate is 24.4%!

The XIRR function in Microsoft Excel or Google Sheets helps demonstrate this:


January 1, 2021 -$94,000 $100,000 minus $6,000 fee.
January 31, 2021 $16,667 Founder payments over 6 months.
February 28, 2021 $16,667
March 31, 2021 $16,667
April 30, 2021 $16,667
May 31, 2021 $16,667
June 30, 2021 $16,667
Average Interest Paid 24.4%

Don’t Get Funded by Short-Term Loans, Get Funded Fairly

Instead of taking on funding like this, recurring revenue businesses could consider offering a smaller discount to customers in exchange for upfront payments. There are also better finance deals out there. Even venture capital can deliver a better cost of capital—that’s how insane the MRR to ARR loan interest rates actually are.

TIMIA Capital offers transparent financing solutions that make a lot more sense for growing SaaS and software-enabled companies. Our whole business is founded on the premise of a mutually beneficial relationship between founders and investors.

Talk to us if you’re looking for some fair capital to help you meet your goals. Fair is a much nicer F-word.

Looking for non-dilutive capital?

TIMIA Capital works with recurring revenue technology
businesses between $2 – $20 million ARR.

Get funded


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