Unlocking Revenue For Growth

• Published date: 21 July 2025
• Subject Matter: Finance and Banking, Debt Capital Markets, Financial Services
• Law Firm: FRP Advisory
• Author: Mr Rahool Patel

Associate Director Rahool Patel delves into ARR lending and the key considerations for borrowers.

How can ARR lending help?

For many Software as a Service (SaaS) businesses, maintaining rapid growth momentum in respective addressable markets is paramount. Here traditional financing options can feel like square pegs in round holes, restricting the pace at which businesses can grow, while demanding mature profitability and ability to service EBITDA-based covenants.

Leveraging recurring revenue is a powerful, cost-effective tool that provides complementary capital to fuel growth. Lenders can monitor the performance of the borrower through ARR leverage in the short to medium term, typically up to three years, allowing a business to maintain topline growth before the test 'flips' to a traditional EBITDA-based covenant as profitability naturally becomes a stronger focus for all stakeholders.

The so-called J-curve perfectly illustrates this relationship. A scaling business will likely demonstrate high ARR growth with low or negative EBITDA due to significant investments in customer acquisition costs. As the business matures and begins to realise operational...