Invoice finance vs business loan: what's the difference?

Quick answer: invoice finance releases cash tied up in unpaid invoices, so the funding available grows with your sales. It suits businesses that sell to other businesses on 30 to 90 day terms. A business loan gives you a fixed lump sum repaid over a set term, which suits one-off investments such as equipment, refurbishment or expansion.

How invoice finance works

You raise an invoice to a business customer as normal. The finance provider advances a large share of its value, often in the region of 80 to 90 percent, usually within a day or so. When your customer pays, you receive the balance minus the provider’s fees.

There are two main types:

• Factoring: the provider manages your sales ledger and collects payment from customers
• Invoice discounting: you keep control of collections, and customers usually don’t know a provider is involved

Side-by-side comparison

	Invoice finance	Business loan
Best for	Cash flow gaps from slow-paying customers	One-off investment or planned spending
Amount available	Grows with your invoices	Fixed amount agreed at the start
Repayment	Repaid as your customers pay	Fixed monthly instalments
Security	Your unpaid invoices	Unsecured, or secured on assets or property
Ongoing commitment	Often a minimum contract period	Ends when the loan is repaid

Which should you choose?

Choose invoice finance if your main problem is waiting to be paid, your sales are growing, or you work in sectors like construction, manufacturing, wholesale or transport and logistics.

Choose a business loan if you need a set amount for something specific and can afford regular repayments.

Some businesses use both, for example invoice finance for day-to-day cash flow and a loan or asset finance for equipment.

Get the options compared

Bridgemead Finance is a UK commercial finance broker. We can compare invoice finance and business loan options for your business. Tell us what you need.