The Structure
Capital Stack Breakdown for a $5M SaaS Acquisition
Three products, one file — and none of them secured by a building. The business value was carried by a term loan underwritten against the acquired company’s recurring revenue and the buyer’s own operating record. A second, smaller term layer funded the integration as its own line item, and working capital funded the sales hires from day one. Nothing was priced as goodwill, because none of it had to be.
No bank writes a $5M check against software contracts. Three products underwritten on the revenue funded it in 10 days
Representative structure
| Layer | Amount | What it covered |
|---|---|---|
| Acquisition term loan | $3.5M | Business value, underwritten against $3M of contracted ARR and the buyer’s operating history |
| Integration term layer | $900K | Platform migration, customer-success consolidation, and the retention period on key engineers |
| Working capital | $600K | A six-person sales team hired at close, funded before the first new contract billed |
| Total | $5M | Funded together on one application |
Larger software acquisitions fund the same way when ARR, retention, and the buyer’s story qualify.
The Transaction
What the Buyer Was Acquiring
Bobby Friel
Founder, Basecamp Funding
The version of a software acquisition nobody prepares you for: the numbers are excellent, the customers renew, and the first three lenders you call ask what the collateral is.
A buyer moved on a SaaS company doing $3M in annual recurring revenue — and hit the wall every software acquisition hits: banks don’t know how to underwrite it. Recurring contracts aren’t collateral a credit committee recognizes, and there’s no building or machinery to appraise. The specialist desk read the ARR as what it is: contracted, predictable revenue with a renewal history. A $5M stack carried it — a term loan against the recurring revenue for the business value, a second term layer for integration, and working capital to hire the sales team that would scale it. Funded in 10 days, no software-collateral debate.
Underwriting
How Financing a SaaS Acquisition Actually Works
A bank underwrites assets. Software has almost none it recognizes — and that single mismatch is why a profitable, renewing, $3M-ARR company can be harder to finance than a machine shop with a third of the revenue.
The Bank
What a bank sees.
No real estate. No inventory. Equipment that amounts to laptops. A customer list it cannot pledge, contracts it cannot foreclose on, and a purchase price that its policy manual classifies almost entirely as goodwill. It either declines or offers a fraction of the number against a personal guarantee and a pledge of everything the buyer owns.
This Structure
What this structure saw.
Contracted revenue with a documented renewal history, net revenue retention above 100%, and a buyer already operating in the category with revenue and deposits of their own. Recurring revenue is the collateral. It simply isn’t the kind a bank knows how to appraise.
Why Recurring Revenue Is Collateral, Even When a Bank Says It Isn’t
The thing being purchased is a stream of payments from customers who have already decided to keep paying. That is more predictable than most of what a bank does lend against — a restaurant’s Friday-night receipts, a contractor’s next bid. The difference is that a credit committee has a line on its form for real estate and none for annual recurring revenue. Revenue-based acquisition financing has that line. It reads the ARR, the churn, the contract terms, and the cohort behavior, and it prices the business on what it collects.
Underwriting the Buyer, Not Just the Target
The acquisition term loan was carried by two things: the acquired company’s contracted revenue and the buyer’s own operating record in the same category. That second part matters more than most buyers expect. A software operator with existing revenue, deposit history, and a product in the market is buying customers they already know how to serve. That is a fundamentally different credit than a first-time buyer with a business plan, and it is priced accordingly.
Why Integration Gets Its Own Layer
Most software acquisitions fail in the ninety days after close, not at the closing table — the platforms don’t merge cleanly, the customer-success teams overlap, and the engineers who know the codebase leave. Funding integration as its own term layer, rather than squeezing it out of the acquisition loan or the operating account, meant the migration, the consolidation, and the retention packages on key engineers were budgeted before day one rather than discovered on day thirty.
The Sales Team Is the Reason to Buy
The buyer wasn’t acquiring $3M of ARR to hold it. The thesis was that the product was under-sold — a strong renewal base and almost no outbound motion. The $600K working-capital layer hired six sales reps at close and carried them through a full sales cycle before their first contracts billed. A bank would call that an operating expense the buyer should fund from cash. The structure treated it as what it was: the part of the acquisition that produces the return.
What Ten Days Actually Required
A clean data room: contracted ARR by customer, cohort retention for the last eight quarters, the buyer’s bank statements and revenue, and a signed letter of intent. With that in hand, three lenders underwriting three pieces they each price every day moved in days. The alternative — one bank, one committee, one policy manual with no line for software — is the process most buyers are still in a quarter later.
What $3M of Acquired ARR Actually Buys
It buys a customer base that has already voted, with a renewal history a new sales team can sell against. Cross-sell into an installed base closes faster and churns less than net-new logos, and the combined company is now the kind of asset the next buyer pays a revenue multiple for — the buyer’s exit, on the buyer’s timeline.
Run the arithmetic your own way: what is your net revenue retention, and what would a six-person outbound team do to a base that already renews at that rate?
For most software operators at this scale, the structure is serviced out of the recurring revenue it acquires. That is a different question than whether a bank can find a building to lend against.
The Products
The Products That Funded This Transaction
| Product | Role here |
|---|---|
| Business Acquisition Financing → | Business value, underwritten against contracted ARR and the buyer’s revenue |
| Term Loans → | Integration as a budgeted line item, not an afterthought |
| Working Capital → | A sales team hired at close and carried through its first cycle |
Financing this whole sector: Technology Company Financing →
The Result
What Changed After Close
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Related
Similar Structures
Representative scenarios — illustrative, anonymized figures, not specific client transactions.
FAQ
Financing a SaaS Acquisition — Questions, Answered
Can you get a business acquisition loan to buy a SaaS company?
Yes — but usually not from a bank, and not as one loan. Software has almost no collateral a credit committee recognizes, so bank acquisition loans either decline or come in far below the purchase price. Revenue-based acquisition financing underwrites the recurring revenue itself: contracted ARR, retention, contract terms, and the buyer’s own operating record. Structured with a separate integration layer and working capital, it reaches the full number.
Is recurring revenue considered collateral?
By a bank, rarely — there is no line for it on the form. By a revenue-based lender, it is the primary basis for the loan. A book of contracts with a documented renewal history is more predictable than most physical collateral; it is simply harder to foreclose on, which is what a bank actually means when it says software has no collateral.
Do lenders look at the SaaS company you’re buying or the one you already run?
Both, and the second matters more than most buyers expect. The acquired company’s ARR, churn, and cohort behavior set what the revenue can service. The buyer’s existing revenue, deposits, and record in the category set how the transaction is priced. A software operator buying customers they already know how to serve is a different credit than a first-time buyer with a business plan.
How much do you need down to buy a software company?
There is no fixed percentage on a revenue-based acquisition. What the structure supports is a function of the acquired ARR, its retention, and the buyer’s own cash flow — not a policy figure. What a bank calls a down payment is often just the gap between the purchase price and the fraction of it the bank was willing to price as goodwill.
Can you buy a SaaS business without an SBA loan?
Yes, and for a competitive software acquisition it is usually the faster path. SBA 7(a) can work for smaller software purchases, but the timeline and the collateral-and-guarantee requirements are the usual problems. Revenue-based structures underwrite on the ARR and can fund in days to a couple of weeks; this one funded in 10. The trade-offs differ in real ways, and a specialist should walk you through both before you commit to either.
Should integration costs be part of the acquisition loan?
They should be funded, and they should be their own layer. Platform migration, customer-success consolidation, and retention on key engineers are where software acquisitions actually fail — in the ninety days after close. Budgeting them as a separate term layer means the money exists on day one rather than being discovered as a shortfall on day thirty.
How long does it take to finance a SaaS acquisition?
With a clean data room — contracted ARR by customer, eight quarters of cohort retention, the buyer’s bank statements, and a signed letter of intent — a revenue-based structure can fund in days to a couple of weeks; this one funded in 10 days across three layers. What slows a software deal is almost never the lenders. It is a buyer still explaining to a bank what a renewal rate is.
