7 Reasons Why Invoice Financing Is Better Than a Bank Loan

It is often assumed that bank loans are a better way of providing a company with a cash boost than invoice financing but that is not really the case. Below, we list seven differences between bank loans and invoice financing which shows that the latter may be a better option.

1 – Time

Banks are extremely quick to request money from people but when they are called upon to provide a financial service, they are notorious for taking their time. When you apply for a loan, the bank performs lengthy checks and underwriting. Companies in need of immediate cash will not benefit from bank loans. In contrast, invoice financing providers are quick responders and deliver cash in rapid time.

2 – Borrowing

With a bank loan, you are borrowing money. With invoice financing, you are selling assets (your invoices). This puts your company under less financial strain.

3 – Established Companies

Invoice financing companies have no problem dealing with relatively new organisations that have yet to establish a major presence. If a company’s clients are deemed to be trustworthy, the provider isn’t concerned about the status of a business. New companies that are growing too fast to keep up with their balance sheets should strongly consider invoice financing. Banks often reject companies that are not well established.

4 – Financial Security

Banks almost always ask to see a company’s trading figures for the last 24 months and also seek a form of collateral, usually property. With invoice financing, book debts are normally the only assets necessary if a company wishes to get funding.

5 – Cash Flow

Once an invoice financing provider is happy with your company and is willing to begin a working relationship, the whole process can be set up within 7 days. When you receive your invoices and sell them to the provider, the money may be in your account within 24 hours. As your sales figures increase, the level of funding will automatically increase. This means there is no need to negotiate new terms which is not the case with a bank loan.

6 – Assets

Banks loans often involve an individual using his/her personal assets as collateral. With invoice financing, only business assets are used.

7 – Contact

Those who receive bank loans seldom come into contact with the bank once the money has been approved. The whole process is informal with repayments usually done by direct debit. With invoice factoring, the provider is constantly in contact with its clients and their customers. Factoring companies tend to be hands on so clients gain a greater level of familiarity.

Invoice financing and bank loans have very little in common. One increases cash flow and uses your company’s assets while the other becomes a debt on your balance sheet. Loans require companies to have a good financial track record which stops them from being an option for new companies. Invoice financing providers are more worried about the credit history of your clients so start-ups can benefit from it.

We can offer you financial solutions to help keep your cashflow healthy. Request a quote now to find out how much invoice finance can save you.


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