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# How (and when) to source your technology company’s first credit facility

Bank debt can fuel growth more efficiently than equity.

By Matt O’Brien, Executive Director, WF

Sufficient operating capital is essential for technology companies. Yet knowing when to make the transition from early-stage venture funding to more traditional credit facilities isn’t always clear. Working with a financial institution that understands the technology sector is a smart first step.

The lifecycle for technology businesses can differ substantially from other industries and that variability requires a different type of financial support. It’s not unusual, for example, for tech innovators to grow 20 to 40 percent year-over-year. Contrast that with the 1 to 5 percent growth that’s typical in manufacturing and other sectors and the need for a vastly different approach to cash flow becomes apparent.

The good news is that venture lending is not the only option. Financial institutions with deep roots in technology banking will be well equipped to support technology companies at all stages, from those experiencing rapid growth to those planning their first initial public offering (IPO) through moving into new markets and maturity.

Understand your credit options

Relying solely on equity to drive growth can increase expenses unnecessarily. Technology companies that access bank debt can gain a competitive advantage by fueling growth more sustainably.

One of the most common misconceptions is that banks will only lend to well-established technology companies with positive cash flow. In fact, a variety of options exist; technology-forward banks work with each customer to tailor an offering to the company’s unique situation.

Three types of bank financing for technology companies include:

1. Traditional cash flow lending. These credit facilities best suit maturing companies with positive cash flow, a proven product, and a demonstrated target market. A variety of structures exist, giving technology companies maximum flexibility. Typical first credit lines can range from $10 to $25 million.
2. Recurring revenue loans. This credit option often meets the needs of mid-size to enterprise technology companies that serve business-to-business (B2B) markets where the path to profitability remains 12 to 18 months in the future. The bank analyzes risk and facility size based on the product or service’s gross margins and recurring revenue potential.
3. Pre-IPO private credit facilities. This unique credit structure can bridge the financing gap while technology companies time their IPO. It’s especially useful when markets are in flux and innovators may need additional operating cash while planning their ideal launch.

Tap into your bank’s knowledge, best practices, and connections

Ongoing conversations with a technology banker will streamline the decision-making process. WF recently helped a tech company obtain its first credit facility—funding with borrower-friendly terms that significantly improved the company’s capacity and enabled them to focus on core business growth.

Key to success was starting their financing conversations early. By the time the tech company was ready to move from equity to more traditional financing, they understood the market and the credit approval process; they clearly articulated the terms most important to their business. This resulted in a more affordable, scalable form of financing.

The tech company appreciated WF’s knowledge, transparent approach, and willingness to collaborate. A strong banking relationship helped change their view of traditional credit from an opaque process that saddled borrowers with restrictive guidelines, to one of possibilities, flexibility, and support.

Choose a bank that can scale with you

A broad banking relationship brings advantages beyond operating capital. Working with an established national provider makes it seamless to access other core financial tools and services, from payment processing to treasury management applications. Banks with strong technology verticals will also provide value through industry knowledge, best practices, and connections.

WF excels at meeting the needs of technology companies. With more than 100 technology bankers across the U.S., relationships with many of the largest venture capital investors, and more than $3.54 billion in total commitments to the technology sector, we’re well positioned to help technology innovators achieve your goals—today and in the future.

WF Bank, N.A. Member FDIC.

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