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Bank Loans vs. Invoice Finance

So your, business needs funding. But which is more suitable – invoice finance or a bank loan?

Bank loans

In order to secure a bank loan, you’ll need a business plan, details on how you’ll use the loan and any other debts that your company has. You might also need at least two years’ accounts, your business performance, cash flow and profit/loss forecast, and bank statements. If you can get hold of all these details, then there’s still a choice of which loan to go for.

The most straightforward type of loan is a business overdraft. This lets you borrow on a short term basis for a set amount. However, they are also repayable on demand which can be a drawback. Next, there are term loans which are at a fixed or variable rate, repayable over a certain period. You can also get bridging loans, which are suitable if you need temporary finance to bridge the gap between more working capital coming in. However, these can be expensive. If you need finance to buy property, you can take out a commercial mortgage, which are generally repayable over 15 years.

Invoice Finance

Invoice finance is growing in popularity. Whereas banks demand stringent requirements before agreeing to lend and often charge high interest rates and setup fees, invoice finance can be an option even if your business is struggling with cash flow.

Factoring will let your business release the funds tied up in unpaid invoices, letting you get hold of the funds within 24 hours rather than having to wait months. The factoring lender will also take over debt collection with this method, which can be a welcome relief for small companies with limited resources.

Invoice discounting works on the same principal, but is suited to larger companies who wish to remain in control of their debt collection. Customers won’t know you are using an invoice discounting service, so you can remain discreet while enjoying all the benefits of fast, flexible funding that relieves late payment and cash flow issues.

Whatever your business needs, make sure to explore all your options before making your financing decisions.

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