MRR Line of Credit

MRR Line of Credit Description:

  • A line of credit in which the maximum amount available for borrowing is tied to the borrower's monthly recurring revenue. This loan type was designed for companies that have subscription revenue, but no accounts receivable because customers pay up front.

Pros:

  • Provides higher amount available for borrowing than an accounts receivable based line of credit.
  • The amount available for borrowing will grow as the borrower grows.
  • Borrower does not have to be profitable or VC-backed.

Cons:

  • Higher interest rate than traditional line of credit.
  • Lender requires warrants.

Typical borrower:

  • SasS company with monthly recurring revenue and low customer churn rate.

Typical lender:

  • Tech banks provide MRR lines. They offer the lowest interest rates but, due to bank regulatory requirements, they tend to loan smaller amounts (2-4x MRR) and require financial covenants and other terms. In addition, tech banks have a strong preference for VC-backed companies.
  • Non-bank lender such as SaaS Capital. They require higher interest rates and more warrants than tech banks, but offer larger loan amounts (4-6x MRR) and more flexible terms.

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