If you’re looking for ways to improve your business cashflow this year (and let’s face it, which business owner isn’t?) then chances are you’ve done your homework. You’re probably considering a number of options, and we’re willing to bet that bank loans and invoice factoring are in that list somewhere.

But what is the difference between these two methods of finance, which is the best for your company and how do you find the right factoring company for your needs?

Not Much In Common

It turns out that bank loans and invoice factoring don’t have much in common at all, yet you may be considering either of them as a way to improve your cash flow. A bank loan can take months to be approved – not to mention all that complex paperwork – and your company’s credit history will be the deciding factor.

This is bad news for start-ups and small businesses, as you may not meet the bank’s strict lending criteria and even if you do, the approval process could be time consuming. The bank decides how much they will lend you and you’ll pay interest on any money you borrow.

Conditions and Criteria

Often, a commercial loan comes with a ‘loan covenant’. This is a set of conditions which mean you must meet certain financial requirements. If you fail to meet them, this could result in you defaulting on your loan, which could cost you dearly.

You’ll often find a bank loan restricts certain business activities too. For example, you may not be permitted to purchase assets for your business or incur any additional debt during the term of the loan. With so many restrictions in place, it’s easy to see that a bank loan may not be the answer to your cashflow problems.

How Can Factoring Companies Help?

Invoice factoring, on the other hand, is a flexible, low-risk way to improve your cashflow. A quick way to convert funds tied up in your unpaid customer invoice into cash, you’ll usually have up to 90% of the invoice’s value in your account within 24 hours.

Sell invoices to a factoring company and there’s no need for years of credit or business history – the amount you can borrow is based on the value of your invoices, so there’s unlimited funding potential. There’s no debt to repay and the factoring company simply deducts a small fee for their services.

Are Factoring Companies or Banks My Best Choice?

For low-risk, no-interest borrowing that will boost your company’s cashflow, there’s no contest. Factoring companies let you borrow against unpaid customer invoices, so there’s no risk involved, and you’ll never borrow more than you can afford. Bank loans may be the better option for established businesses with years of credit history, but if you’re a small company or start-up looking to make 2018 your year, you can’t go wrong with invoice factoring.

Simply Factoring Brokers has years of experience matching companies to the right factoring company for their business needs. We have longstanding relationships with factoring companies that work across a range of industries, from construction to haulage and recruitment, which means we can negotiate a great deal for you and ensure you’re matched with a factor with experience in your sector.

Want to Know More?

If you’d like to find out more about invoice factoring and how it could benefit your business, or if you’re wondering if it’s the right choice for your company, just pick up the phone and call us today on 0330 134 2826 for no-obligation advice. You can also email us at online@simplyfactoringbrokers.co.uk and one of our friendly team will get back to you with some more information.

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Look for a Loan or Find a Factoring Company?
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Look for a Loan or Find a Factoring Company?
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With so many funding options available to business owners, we break down the difference between loans and factoring. Find out which is more appropriate for your business, and how to get the ball rolling.
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Simply Factoring Brokers
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