I get asked often if SBA loans are eligible for SaaS / Software acquisition.

SaaS is eligible for SBA. The issue isn’t one of eligibility, but one of affordability. SBA acquisition loans are geared towards high leverage and the multiples on SaaS just usually don’t fit very well for this type of Sr. Debt.

If you’ve got a multiple north of 4 – 4.5X, then usually SBA can be tough if you’re thinking of using the key element of the SBA program which is high leverage, typical at 10% down. If you’d like to bridge the valuation gap with more equity, that could certainly work. But with multiples of 6-7X or higher, SBA just doesn't seem to be a realistic option.

Another element of SaaS that can make SBA tricky are valuations typically based off of ARR. For the vast majority of SBA lenders, we are basing financing analysis on historical EBITDA and not projections or projected run rate. High growth SaaS/Software valuations are often based on run rate and growth rates which doesn't work well with SBA's historic EBTIDA basis. Other types of debt can be better for fast growing SaaS companies. Mezzanine for example that allows interest only/PIK, might be a better fit.

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