Capital, cash and fundraising · Answered by Golden Section from more than 400 B2B software companies observed
Use debt when the money funds more of something that already works and you can say what the next dollar returns and roughly when. Two more account executives on a channel with a known ramp and quota is a debt problem; a second vertical or a platform rebuild is not. Lenders underwrite the durability of recurring revenue rather than profits, so the controlling conditions are net revenue retention above 90%, gross margin after services above about 65%, roughly $1M or more in ARR, and a channel with CAC payback under 18 months. Do not borrow against an unproven motion or leaking retention, because debt is repaid whether the quarter worked or not. Before talking to a lender, reconcile the ARR schedule to the general ledger and run the cash flow forecast in a downside case to find the month a covenant would break.
Debt buys more of what already works; equity buys something that does not exist yet. Borrow when the return on the next dollar is measurable and the downside forecast can service the payments without breaching a covenant.
| Metric | Value | What it means | Source |
|---|---|---|---|
| Golden Section lending minimums | $1M ARR and 90%+ NRR (revenue-based); $1.5M ARR, 95%+ NRR and 68%+ gross margin (term loan) | published eligibility floors for each product$500K to $5M facilities; high-teens total APR; revenue-based 12 to 24 months, term loans 24 to 48 months | Golden Section, publishedGolden Section Growth Capital Lending |
| Use of proceeds test | CAC payback under 18 months; gross margin above 65% | months of gross profit to recover acquisition cost; gross margin after cost of revenuethe channels Golden Section will fund; experiments are excluded | Golden Section, publishedGolden Section Growth Capital Lending |
| Facility size | commonly 3 to 9 months of ARR | committed facility ÷ monthly-equivalent ARRdepends on retention, gross margin and customer concentration | Golden Section, publishedCombining Equity and Non-Dilutive Debt |
| Market pricing for software credit | typically 10% to 15%; advance rates 50% to 70% of ARR at the small end | all-in interest cost; facility as a share of ARRSeptember 2026 review of venture debt and private credit; availability for a $5M ARR company is worse than in 2020 | Golden Section, publishedInvesting in Software, 2026 addendum |
Debt does not dilute, and it does not forgive. That pair of facts decides where it belongs. A lender is repaid on schedule whether the new reps ramped or not, so debt on a channel with a measured return compounds the founder's ownership, while debt on a bet can take a company that was otherwise fine. The SaaS Capital Flywheel shows the upside: borrowing against ARR raises how much of each turn's revenue goes back into the channel that produced it, and none of it costs equity.
The danger is usually calibration rather than the loan itself. A minimum ARR covenant set against the growth plan turns an ordinary miss into a default, and a covenant with no cure hands the lender control on a bad month. Set covenants against trailing performance with headroom, and model the breach first in the cash flow forecast. A lender will read the ARR schedule before anything else, and most early credit processes fail on reconciliation, not on performance.
These numbers are invented. A company at $3M in ARR has net revenue retention of 97%, gross margin after implementation and support of 71%, and spends $0.80 in sales and marketing for every $1 of new ARR. It wants two more account executives, who will cost about $400K before they return anything. That is a known return on a working channel, so it borrows $1M against revenue, sized to twelve months, with covenants set on trailing performance. The downside forecast shows a flat quarter does not breach. A second company with identical growth but net revenue retention of 86% should not borrow at all. Its first project is finding out why customers leave.
A founder buyout or a dividend recapitalization is a legitimate use of debt without a growth channel, but only for a business with durable cash generation. And in a slow-cash quarter, a revenue-based structure that flexes with receipts can be safer than a term loan even at a higher total cost.
From the Golden Section mistakes list, each paired with the play that prevents it.
Founders who avoid debt by reflex pay equity prices for growth a lender would have financed at a known cost.
Debt on a channel that does not yet convert predictably accelerates the failure and still has to be repaid.
Covenants make cash visibility non-negotiable; a borrower who does not know runway every month finds out from the lender.
In the order we would run them. Each is on its own page, most with a free Excel template.
Builds the reconciled ARR and retention view a lender underwrites first.
Computes margin after services and payback the way a lender will.
Shows whether the channel you want to fund returns enough to service the debt.
Runs the downside case that tells you how much you can borrow and which covenants to refuse.
Combining Equity and Non-Dilutive Debt Sets out what lenders read, how to calibrate covenants and how to sequence debt with equity.
For repeatable spend, almost always, because interest on a facility is a known cost and equity is priced at exit. Selling 20% of a company that later sells for $60M costs $12M. Equity is the better tool when the money funds a change that no lender will underwrite, such as a second vertical or a platform rebuild.
It is lending underwritten on the quality of recurring revenue rather than on profits or assets. Revenue-based financing repays as a share of monthly receipts, so payments fall in a slow month; a SaaS term loan repays on a fixed schedule and usually costs less. Golden Section offers both at $500K to $5M, priced at a high-teens total APR.
Facilities commonly land between three and nine months of ARR, depending on retention, margin and concentration. The safe amount for your company is the one your downside cash flow forecast can service through a bad quarter without breaching a covenant or running cash down below a real reserve. If a plausible miss causes a breach, the facility or its covenants are wrong.
Golden Section Lending provides revenue-based financing and SaaS term loans of $500K to $5M for B2B SaaS companies at $1M+ ARR with strong retention and a proven channel. If the motion is not yet proven, we will say so and point you to the work that comes first.
Growth capital lending →Reviewed by Dougal Cameron, CEO & Co-Founder on 2026-09-23. Golden Section observations are labeled separately from external benchmarks and illustrative arithmetic.