How many EBITDA turns of bank debt is realistic for a SaaS business?

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October 03, 2024

by a searcher from Harvard University - Harvard Business School in Toronto, ON, Canada

Traditional searcher here! Frequently, I come across SaaS businesses with great margins, however, on the higher end of TEV. In most cases, I assume a bank debt of 2-2.5X EBITDA for a 7 year term at 8% interest rate. Are these the typical terms these days? Sometimes, even an extra half turn can make the numbers work.

Also, who are the most popular lenders in the US?

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Reply by a searcher
from University of Toronto in Toronto, ON, Canada
It depends on several factors including, historical/projected performance, industry and quality + experience of the candidate. Consider an incentive structure tied to EBITDA that scales, for example. at $xx EBITDA a cash bonus of $yy, at $xx EBITDA+10%, a cash bonus of $yy+10% and so on. This helps to set a clear alignment of financial goals.
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Reply by a searcher
from Bowling Green State University in Surrey, BC, Canada
Terms will likely come in a bit better than what you've described - not going to put words in the mouths of the bankers on this forum. Clearly, higher rates has an impact on potential debt service, so that's a limiting factor, but amortizations tend to be stretching for good deals and that translates into leverage in excess of 3x typically.
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