Finance Firm Sets Up Cash Flow Lending Service For Digital Signage Projects
March 11, 2016 by Dave Haynes
The digital signage business tends to get fixated on the technology that’s front and center on projects, while really important matters, like how the things get bankrolled, don’t tend to get anywhere near as much attention.
Medium to big jobs involve a lot of infrastructure and working capital, and it’s not money that’s always easy to get, or coming with particularly workable terms – especially for vendors.
A Toronto-based company that’s been in and around digital signage and the broader technology business for many years has started marketing a financing solution aimed squarely at the money challenges facing hardware, software and solutions providers.
In simple terms – which is about all I am capable of conveying when it comes to financial services stuff – Alliance Financing works with growing companies that base their revenues on a SaaS or HaaS (Hardware as a Service) model to bring contract-committed revenue forward. So if SaaS revenues on a rollout are billed monthly, and would over six months amount to $100,000, instead of $16,666 coming in month to month, the whole nut of that $100K – minus the financing fee – is available upfront.
That can be critical for basic things like operating capital for the business and paying sales commissions to the person who won the deal.
In effect, the company will take over the paper on a SaaS, HaaS or other services agreement, and pay the services provider at the front-end, in six month chunks, for the term of the contract. Alliance does the billing and collection, but using the vendor’s brand and particulars, so the client has no sense of how financing and payment works.
Bernie Shimkovitz, who runs Alliance and has been around the finance side of the signage business for more than a decade, describes the SLG Contract Financing Solution as a cash flow lending business. SaaS Lending Group is the other handle for the business. Alliance=SaaS Lending Group, or SLG.
The company’s pitch goes like this:
- The solution provides a vendor or service provider’s clients with a credit line to grow their business, while maintaining their existing ownership structure;
- It can provide credit lines in the form of a term loan that is tied to a revenue stream;
- Clients would use cloud financing in lieu of Series A, B or C capital rounds that would dilute equity and control.
The amount of money available is based on roughly a 4 to 6X multiple of monthly recurring revenues that would come come out of software and other service deals, and the amount of capital available increases as revenues grow. The cost of that money is roughly nine per cent, and Alliance makes the point that the fee also means the time and paperwork around funding and collections goes away – handled by Alliance.
Alliance covers its butt/mitigates risk in a few ways, like upfront and ongoing financial statements and agreements with the vendor’s bank (lockbox) and its hosting provider.
The company is already working with both hardware and software vendors, and the arrangement is suitable for companies of pretty much any scale. While I’d see it as attractive to smaller businesses, Alliance says the same cash flow issues extend up to Fortune 500s, as well.
Shimkovitz says the sorts of companies and scenarios that could tap into the program include:
- VC’s funded transactions that are looking to delay the next equity round
- Digital Media Sales (subscription)
- Digital Media Sales (Non-Subscription)
- Mobile Application Sales
- Software Sales (Cloud/SaaS/ Subscription)
- Software Sales (Non Subscription)
- Managed IT Services
- Software Implementation Services
- Technology Hardware and Equipment Sales
- Value Added Reselling (HW & SW)
- E-commerce (Physical Goods)
I understand financing about as much as I understand Japanese street fashion trends, or more succinctly, I don’t really get it. But I do, as a micro-business, understand cash flow and things like the cost of acquisition. So this seeeeems to make sense to me.
Alliance is, as you might expect, happy to have a chat with companies, and will be starting a webinar series to help other people like me understand the features and benefits. The lending service is NOT restricted to Canadian companies. You want to talk to Tom Sinnott at Alliance, or Bernie.
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