People and payroll
Developer, delivery-team and implementation salaries can arrive before a project milestone or new customer payment.
Commercial finance, explained plainly
For established and trading UK technology businesses
Finance for UK Technology and Digital Businesses
Technology businesses can grow revenue while placing more pressure on cash. Developers may need hiring before new income is collected, delivery teams may be paid before milestones are invoiced, and cloud costs can rise before the commercial return is clear.
Start with the complete requirement and the economics behind it. This technology business finance guide considers working capital, contracts, product development, equipment and acquisitions without assuming borrowing is the answer.
01
Name the pressure
Separate payroll, delivery, equipment, development and customer acquisition costs.
02
Test the economics
A signed contract or recurring income still needs a credible cash and repayment plan.
03
Choose carefully
Finance is one possible response, alongside deposits, terms, retained profit or a smaller plan.
Start with the requirement
What are you actually funding?
Long-term development, short-term working capital and identifiable equipment should not automatically be placed into one facility. The first useful conversation separates the cash requirement into its real causes and tests when each cost becomes revenue or cash.
Contract mobilisation
A large client contract may require recruitment, contractors, suppliers and delivery capacity before the first invoice.
Product development
Build costs, realistic delivery times, delays and the route to commercialisation need separate assumptions.
Customer acquisition
Marketing spend is paid before its return is known. Test the economics rather than borrowing against hope.
Hardware and infrastructure
Computers, servers, specialist technology, cloud usage and software subscriptions have different cost profiles.
Operating runway
Tax liabilities, office costs, implementation, working capital and an operating buffer may sit outside the headline project.
Acquisitions
Buying a technology business or customer book can combine consideration, integration costs and post-completion cash needs.
Implementation
Training, migration, integration and lost productivity can extend beyond a quoted equipment or software price.
Working capital
A profitable business can still face a timing gap between delivery, billing and cash actually received.
Business stage matters
What stage is the business at?
A pre-revenue startup, an early trading company, an established software business and a project-based digital agency present different evidence and different risks. Debt requires a credible source of repayment, not only an attractive idea or a large market.
Pre-revenue startup
Where revenue is not established, founder cash, grants, equity or customer-funded development may be more suitable than borrowing. LoanLogic does not provide grants or equity investment, and debt still requires a credible repayment source.
Early trading
Revenue alone may not demonstrate affordability. Lenders may examine trading history, recurring income, cash generation, customer concentration and existing commitments.
Established technology business
Recurring revenue, contracts, profitability, retention and cash generation may contribute to assessment. They do not create automatic eligibility or remove the need to test affordability.
Project-based agency or developer
Milestone payments, deposits, work in progress and client terms matter because delivery costs can arrive well before cash collection.
For a closer look at pre-revenue businesses, read technology startup funding options in Bristol and the South West. Project-based businesses can also review how digital agency cash flow is affected by retainers, payroll, contractors and work in progress.
Recurring revenue
Recurring revenue is not the same as available cash.
Monthly recurring revenue and annual contract value describe commercial activity. They do not by themselves show when cash arrives or whether it remains after delivery, acquisition and infrastructure costs.
Payment shape
Monthly customer payments can fund a different cost profile from annual or upfront supplier commitments.
Retention and risk
Churn, cancellation risk and customer concentration can change the quality and durability of recurring income.
Cost to serve
Cloud, software, support and delivery costs affect gross margin before cash is available for repayment.
Cash received
Separate contracted value, invoices raised and money actually collected in the business bank account.
Our guide to SaaS working capital looks more closely at recurring revenue, hiring, acquisition costs and cash flow.
Larger contracts
A profitable contract can still create pressure.
If delivery teams must be hired or paid before milestone payments arrive, the contract can create a cash gap even when the expected margin looks sensible. Review the choices before placing the full requirement into debt.
01
Use existing resources. Retained profit or available cash may be the least complicated route, provided it does not weaken the wider business.
02
Negotiate the start. A customer deposit, annual prepayment or staged billing can align collection more closely with delivery.
03
Improve supplier terms. Contractor or supplier payment terms may reduce the time between paying for delivery and receiving client cash.
04
Resize the plan. Recruit later, reduce scope, delay the project or decline the contract if the economics cannot absorb the pressure.
05
Consider finance carefully. A facility may be considered where margin, evidence and the wider business support repayment.
Read funding a larger software development contract for the relationship between milestones, recruitment, scope risk and margin.
Product development
An operating runway still has a repayment consequence.
Borrowing for uncertain product development is different from financing an established contract or a predictable cash-flow gap. Consider development costs, realistic delivery times, existing revenue, route to commercialisation, founder contribution, delays and cost overruns before deciding how much to build.
Build assumptions
Test the scope, delivery time, dependencies and cost of delay rather than treating a product roadmap as a cash forecast.
Commercial route
Ask who pays, when they pay and whether repayment begins before the product has demonstrated demand.
Safer alternatives
A smaller development scope, customer funding, founder contribution, grants or equity may be more appropriate in some circumstances.
Physical and intangible costs
Hardware, software and implementation are not interchangeable.
Asset finance may be relevant to identifiable equipment, subject to the asset, supplier, useful life and lender criteria. Software, intellectual property, internal development, training, migration and working capital may need separate consideration.
Hardware
Computers, servers and specialist technology may be identifiable physical assets.
Software
Subscriptions and licences can have a different useful life and payment profile.
Implementation
Training, data migration, integration and lost productivity can extend the project.
Working capital
Cash needed while the new system beds in is not automatically covered by equipment finance.
For a focused view, read technology equipment and hardware finance. Identifiable equipment may also be relevant to asset finance.
Possible structures
Match the structure to the cash requirement.
Existing cash, customer deposits, staged billing, supplier terms, a smaller project and founder contribution can all be part of the answer. Where external finance is appropriate, the structure should follow the requirement, not the other way around.
01
Customer and supplier terms
Annual prepayment, deposits, milestone billing and contractor terms may improve timing before borrowing is considered.
02
Asset finance
Specific equipment may suit asset finance, but it does not automatically fund software, payroll or an entire implementation.
03
Invoices and working capital
Eligible completed B2B invoices may support invoice finance. A revolving credit facility may be considered for wider working capital.
04
Business borrowing
An unsecured business loan may be considered for wider costs, subject to affordability and lender assessment.
05
Acquisition finance
Acquisition finance may be considered where valuation, due diligence, buyer contribution, integration costs and post-completion cash generation support the proposed structure.
06
Alternatives and timing
Founder contribution, grants or equity may be alternatives outside LoanLogic's brokerage. Delaying or resizing the project may protect the wider business.
Assessment
What will lenders examine?
Requirements vary by lender and facility. Prepare the complete picture, including the less comfortable assumptions, rather than only the optimistic version of the project.
- Trading history, filed accounts and current management information
- Bank statements, profitability and cash generation
- Existing borrowing and other repayment commitments
- Recurring or contracted income, including payment timing
- Customer concentration, churn and retention where relevant
- Gross margin, project margin and delivery assumptions
- Signed contracts compared with the wider sales pipeline
- Intended use of funds and the director or shareholder position
- Personal guarantees, security and a credible repayment source
When borrowing may not be the answer
Finance may be unsuitable where the business is pre-revenue with no credible repayment source, repayment depends entirely on an unproven product, acquisition costs are not producing an economic return, one client represents excessive concentration, repeated borrowing covers underlying losses, or contract margin cannot absorb finance costs.
Equity, grants, customer-funded development, deposits, a smaller scope or a delayed project may be more suitable in some situations. Funding Readiness helps organise the information for a useful first discussion.
Questions worth asking
Technology finance, without shortcuts
Can technology businesses borrow against recurring revenue?
Recurring revenue may help a lender understand the business, but it is not the same as cash available for repayment. A lender may also examine customer concentration, churn, margins, payment timing, existing commitments and cash generation.
Can finance fund a software development contract?
It may be considered where the contract, margin, delivery plan and wider business support repayment. A signed contract does not remove the risks of recruitment, scope change, delayed milestones or client payment timing.
Can asset finance fund software and implementation?
Asset finance may be relevant to identifiable physical equipment, subject to lender and asset criteria. Software subscriptions, custom development, training, migration and working capital may need separate consideration.
Does LoanLogic provide grants or equity investment?
No. LoanLogic is an independent commercial finance brokerage. It can help assess potentially suitable commercial finance structures, while founder funding, grants, equity or customer-funded development may be alternatives outside LoanLogic's brokerage service.
Start with the costs. Choose the funding structure second.
LoanLogic helps establish the complete requirement, separate recruitment, development, equipment and working-capital costs, examine the repayment position, compare potentially suitable structures, prepare information a lender may require and approach relevant lenders where a commercial finance application is appropriate.