Invoice finance vs business loans (and other types of lending)

It’s not unusual for business owners to find themselves in a position where they need to loan additional funds to meet unexpected expenses or to buy time while they address cash flow hold-ups. Most business loan types, however, come with a number of strings attached that can be problematic, so a good alternative for businesses actively issuing invoices is invoice finance. However, how does invoice finance compare to business loans?

In this blog, we unpack invoice finance vs business loans, taking a look at 4 of the most common business lending types in detail, and seeing how these compare to invoice finance and its benefits.

The rise in popularity of invoice finance

Invoice finance is a type of asset-based lending that helps businesses get paid almost immediately for the products or services they have delivered and invoiced, rather than waiting for the duration of the payment terms. What is the asset? It is the invoices that a company has issued which have yet to be paid by the customer.

Small businesses choose to use invoice finance instead of other types of lending because it provides an advance for the cash you have already worked hard to earn, rather than taking on new debt. It’s that simple.

Comparing the benefits of invoice finance vs business loans and other types of lending

Here, we compare invoice finance to other forms of lending, so you can see if it’s right for your needs.

Invoice finance vs. business loans from banks

Bank loans often require a lengthy application and approval process. New and small businesses can lack the credit history and assets that the bank is looking for when evaluating a loan application, so it can be quite tricky for a small business to secure.

With Hydr there’s no complicated paperwork or lengthy approval processes. Your application is considered seamlessly through our platform integration with Xero, all with a simple, fair and fixed fee for 100% payment of your invoice within 24 hours. No extras, no interest, no hassle.

Invoice finance vs. an overdraft 

With invoice finance, you are generating cash for work already delivered. It’s an advance on the money you’ve earned and you have full visibility on the fixed fee you will be charged to have your cash in the bank within 24 hours. With an overdraft (a bank facility where you can withdraw funds in excess of your balance), you are creating a new debt which will accumulate daily interest charges on it.  You can also incur extra charges if you go over your limit, so it can be unclear how long you will be paying for it, and how much it will cost you in the end.

Invoice finance vs. a credit card

Credit cards can come with very high-interest rates and if you can’t pay back what you borrow, your debt can quickly mount up. This can also impact your credit rating and ability to secure future funding. You can get hit with extra fees too, like going over your credit limit or being charged to use an ATM.

With invoice finance, you are not taking on any new debt and you have complete visibility on exactly what the fixed fee will be for payment of your invoice, in full, within 24 hours, giving you complete peace of mind.

Invoice finance vs. supply chain finance

Invoice finance and supply chain finance are the same, right? Wrong.

In supply chain finance, the buyer of your product or service agrees that they will pay your invoice early for a discount. The benefit to you is that you receive early payment. The benefit to the buyer is they can further extend their payment terms.

The big difference is that these funding decisions remain with the buyer, not the supplier. They decide the funding partner and they dictate the terms, such as the amount of the discount the supplier has to accept. What this means is that supply chain finance doesn’t change the often unbalanced relationship between big buyers (who are often the ones with very long payment terms) and small business suppliers. You, as the small business supplier, do not gain the certainty and control that you do with invoice finance, where in contrast, you determine what invoices you would like to finance based on your cash flow needs – as well as having complete visibility on what the fixed fee will be and if it works for you.

Summary

Choosing the right type of loan for your business is important for ensuring you can reap the benefits of the facility with minimal impact on your business’ current or future financial health. When it comes to invoice finance vs business loans, invoice finance offers clear benefits that businesses can tap into without having to wait on outstanding invoices, making it a good option for optimising cash flow.

Invoice finance by Hydr

If you want to be in control of your finance partner but also get paid almost immediately for your hard-earned work, give us a try today. Our fees are fair and fixed, we have no hidden charges and absolutely no mounting interest. We protect each invoice with credit insurance as part of our fee and, even if your customer is a few days behind making payment, that fee stays fixed. Check our invoice finance pricing today!