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Friday, November 15, 2019

C-Suite Advisory

Invoice Finance vs. Term Loans – The Basics

Small business loan

It can be really difficult to determine success in the business as there are several factors involved in this process. But if we talk about a single element that can determine success in the business, we must say that it’s none other than the cash management. According to the stats, the major reason why many businesses fail is that they fall short of cash. It doesn’t mean that they don’t have any assets or customer owing them the money.

But it’s just because they cannot find the right solution to finance their business in a critical situation. Usually, business loans appear to be an attractive option when businesses get into financial problems. Therefore, many businesses go for this option when they can’t find a way out. Thanks to the banks and other financial institutions that have now created several loan options for the businesses.

It means you won’t have to make any major sacrifices and you’d be able to find a suitable option for your business needs. The purpose of writing this article is to highlight the difference between invoice finance and term loans. You must have heard of these terms if you’re searching for business loans for the first time. Many people don’t understand the difference between these products.

As a result, they end up making a decision that’s not suitable for their business. Therefore, it’s really important to understand the difference between these products before you make a decision.

Invoice Finance is for businesses that have plenty of unpaid customer invoices

The invoice finance can be the perfect option for you if you have cash flow issues. The important thing about this financing option is that it only provides you with the loan based on the amounts due from customers. The constant cash flow is the basic need of every small business no matter how well they are performing in the industry. The problem with many businesses is that they only get paid from the customers when the product is delivered.

But they need the money to buy the products from the market. Now, the business would have to wait for the payment before they could take the next orders because they don’t have the cash available. This is where invoice financing appears to be helpful. The invoice finance can fill this gap by providing you with instant access to the cash. Thus, you’d be able to continue your business operations without even worrying about the shortage of cash.

You can get around 80% of the unpaid invoices with the invoice finance. But the amount may vary based on the financial institution you’ve selected for this purpose.

Term Loans

Term loans offer you a specific amount of money as a loan that needs to be paid off within a limited period. The bank loans are the best example of term loans. Under this category, you can get the loan from a bank or a financial institution based on your needs. These loans come with a fixed or floating interest rate. And the lender will set a set repayment schedule for you after analyzing your financial situation.

Usually, small businesses take advantage of the term loans to buy fixed assets. The credit team of the financial institution goes through the credit rating and other specific reports of the applicant to decide the loan amount and interest rate.

The major difference between invoice finance and term loan is that their repayment schedule is completely different from each other. The invoice finance needs to be paid off on the invoice due date. But if you’ve taken the term loan, you’d have to make the payment every month. The term loans give you the freedom to extend the repayment period for a few months or even years.

And you’d only have to pay a partial amount of money every month. It means you’d get a better chance of managing your finances with the term loans.

We believe the small businesses must specify their needs before they start looking for the loan options. It helps in making an informed and of course, a wise decision. The invoice finance is the recommended option for businesses that need a quick loan for cash flow. But sometimes, you might need the money to pay for expansion plans or buy equipment to increase the production rate. In these situations, you must go for term loans as they are considered to be the best for the growth of a business.

As we’ve mentioned above, the term loans offer several options for businesses. It means you’d be able to find a suitable plan for your business needs.

We’ve tried to explain the basic difference of invoice finance and term loans in this article. And we hope you’d now be able to make an informed decision. But if you need more information about these products, you can get in touch with us. We’ll try to answer the questions that may appear in your mind.


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Mindy Wright
Philadelphia native Mindy is passionate about creating lists about anything and everything. She recently moved to New York. Mindy is a frequent keynote speaker at prestigious conferences and universities in the United States and the United Kingdom. Her favorite Quote: "It's a funny thing about life; if you refuse to accept anything but the best, you very often get it!” Voracious reader. Writer + Editor + Philly girl.
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