Growing businesses needing additional financing are extremely common. Whether it is to stay on top of employee payroll, expand the business and renovate, increase marketing efforts, or cover other business expenses, businesses often need access to a working capital source. Some businesses, usually larger companies, benefit from traditional bank loans or lines of credit. On the other hand,  small business owners benefit from invoice financing options to improve their cash flow.

Invoice Factoring vs. Bank Loans Explained


Invoice financing, also known as invoice factoring or accounts receivable financing, helps businesses improve cash flow from purchasing their outstanding invoices. The factor advances up to 95% of the outstanding amount to its client, usually within 24 hours, and waits for the customer to pay at the end of the invoice payment terms.

The factor will then give the remaining balance of the invoice, minus the factoring fee, to its client. The approval process with factoring companies is much quicker than traditional financing options. Once a business is approved, typically in as little as one business day, they can start factoring their invoices immediately.

Bank Loans

Bank loans, on the other hand, work slightly differently. Similarly, you are advanced cash to cover your operational expenses. However, it is not debt-free like invoice factoring and needs to be paid back with interest at the end of its term. Not all businesses qualify for traditional bank loans, either. If the business is financially secure enough and has good credit scores, getting a business loan shouldn’t be a problem. But, smaller companies sometimes won’t get approved for the amount they need or at all. Typically, there is a longer approval process with a traditional bank loan.

Should I Choose a Bank Loan or Factoring?

Invoice financing is a great option if your business needs access to cash immediately, only needs funding on an as-needed basis, or doesn’t want to add additional debt to your balance sheet. Without the fast financing that invoice factoring offers, daily business operations would have to be put on hold. If your business is in good financial standing and would prefer a loan to increase your credit, then a bank loan is a better option for your business.

Invoice Factoring Bank Loans
No additional debt acquired. Loan plus interest paid back over time to the bank.
No cap on funding. Unlimited potential. Bank can limit the loan amount.
Approved in as little as one business day. Can be a lengthy approval process.
Small businesses are eligible. Businesses with poor credit will find it harder to get approved.

Advantages of Choosing Invoice Factoring

  • Fast and consistent: The whole business financing process is smoother and quicker than a traditional bank loan. Even with small bank loans, your business needs to go through a mountain of paperwork and lengthy approvals. Invoice factoring agreements are known for their speed of getting approved and access to consistent cash flow. The constant cash flow helps companies to stay on top of expenses. Like Porter Capital, top lenders approve you in as little as one business day to start funding your invoices immediately. Waiting to be approved by a bank can be detrimental to a business that is already dealing with cash flow problems.

  • No additional debt: Your business does not acquire any new debt with invoice financing. The factor advances you 80% to 95% of your invoice amount and waits for the customer to pay. You then receive the rest of the money, minus a factoring fee. There is no interest rate as you are not paying the invoice amount back. The only expense you incur is the factoring fee. The more invoices your business factors, the more consistent your cash flow is, which allows you to manage your debt and improve your credit score.

  • No funding amount limitations: The amount you factor comes down to your business volume. The more volume your business does, the more you need to factor. You are not limited to the number of invoices you want to send a factoring company. However, a bank will set a maximum amount for your loan. If you need more, you will have to re-apply and go through the approval process again.

  • Little to no risk: There is minimal risk when working with a factoring company. A factoring company doesn’t need any personal guarantee or collateral as a bank does. You do not need to risk personal assets to factor your invoices and access your cash flow.

If you’re looking for quick access to working capital and want a smooth a quick approval process, contact us today. Click here to get your free non-commital quote.

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