Invoice Factoring vs. Small Business Loan: Which is better?

By Per Frennbro in Fast Financing

Having trouble in getting approval for a small business loan? You are not alone. According to a survey, a a big number of firms that applied for small business loans have failed to receive any credit.
Do you know the major reasons behind this? It’s insufficient collateral, low credit scores and weak business performance. At present, it’s becoming more and more difficult for small businesses to gather working capital from traditional funding sources.

The good news is that there is a perfect solution to this problem such as invoice factoring. As this term is quite new, there are many people who are not that aware of this great funding source. With invoice financing, your small business can not only reduce risk but also get to pay much less than a small business loan. Does your business requires funding, but has limited collateral or a low credit score? Then invoice financing is all you need. In order to help you decide what’s better – small business loan or invoice financing, we have made a comparison between the two. Have a look:

Receive money fast
In case of small business loans, there are a lot of application requirements as well as long approval periods. On the contrary, invoice factoring allows a company to receive a huge portion, about 80% of their outstanding invoices in less than 7 days. If you are a small business with an already established relationship with a factor, then the time can be shortened to as less as 24 hours. This is what makes it a perfect optionwhen a small business requires quick cash.

Low cost
Based on the amount of your loan, payment terms and interest rate, the long-term cost of a loan could be much more than the actual amount that you want to borrow. You will have to pay the interest over the life span of the loan. Also, in some cases, you may require paying double the loan amount. On the contrary, if you go for invoice financing, you don’t need to make any monthly payment or interest payment, as the funds are not loans. They are just the sale of your invoices or accounts receivables for the work that your small business has already done.

Hurdles are fewer
If you want to get a line of credit or a small business loan, you need to provide a number of proofs such asall your financial statements that you are a good credit risk. You need to be in the business for a long time, at least more than 3 years. And the most important thing is that you need to have very good credit. But in case of invoice financing, you don’t need to provide all these details. All a factor needs to know is the credit of the individual or the company that owes the invoice. This allows your company to pay attention to the core business.

If your small business needs quick cash minus the risk, invoice factoring is the only solution, as small business loans involve risks. We are a leading platform where small businesses meet factors. Want to take our help? Contact us today!

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