Invoice factoring and a bank loan have very little in common—other than the fact that both provide cash to finance small businesses. Here’s a simple factoring vs. bank loan comparison to help you decide which can work for your business.
Invoice factoring
With invoice factoring, you simply convert your invoices into immediate cash to cover operating costs without taking on debt. You sell your invoices at a small discount to a factoring company like Triumph Business Capital and get immediate cash to boost your small business financing.
Does My Credit History Matter When Applying For This Small Business Financing Option?
Worried about your credit? No problem! Invoice factoring is primarily based on the quality of your customers’ credit, not your own credit or business history. While most banking institutions look at the same documentation we do, our focus primarily on the quality of your customers. Don’t let the successes and failures of your business journey stop you from getting paid.
Plus, invoice factoring works fast. You’ll typically receive approval in a few business days. Better yet, there’s no debt to repay, and you have unlimited funding potential.
As long as you have invoices, you have the opportunity to convert them into cash and help finance your small business. Even startups are eligible for factoring.
Traditional bank loan
Compare that to a bank loan. You pay principal and interest over time, and the funding potential is capped by the bank. After completing all necessary paperwork, the approval process can take months—and it’s based on your company’s operational and credit history. If you’re a startup, chances are you won’t be approved for bank funding.
Additionally, bank loans and lines of credit often carry what’s called a loan covenant. Essentially they’re conditions in a commercial loan that require you to fulfill certain financial performance requirements. If you don’t meet the covenant requirements, you can default on your loan or line of credit. If your bank representative is nice, they may waive the default and charge an additional waiver fee. In the end, it’ll likely cost you more than you bargained for.
Bank loans or lines of credit also come with restrictions that forbid you from taking certain actions like purchasing or selling assets for your business, incurring additional debt for any reason, and more. Because of restrictions, you’ll often find yourself with the financial resources you need without the freedom to use them to solve your biggest business problems.
While a “line of credit” implies that you’ll be financed for whatever you need up to a certain amount, more often than not, that’s not actually what happens. Your credit line often comes with so many restrictions that it’s often easier to look for the next best business financing option.
Which is best for your small business financing?
If you own a business that has a long history of favorable cash flow and profits, or is well-capitalized, then a bank line of credit might be the right choice. But if you’re a new business—or one that may have had a significant hiccup somewhere along the road—then you should consider invoice factoring.
Invoice factoring gives you immediate cash flow without creating debt on your balance sheet, and it’s virtually an unlimited source of working capital.
While banks require a wide range of collateral and financial statements, often refusing businesses that need additional funding but can’t meet the stringent borrowing requirements to qualify for a new bank loan.
Why Triumph Business Capital?
When considering factoring, it’s important to work with a reputable factor with a strong track record. Triumph Business Capital has provided factoring for over 7,000 small to mid-sized businesses since 2004. We have a long history with the transportation industry—and staffing agencies, government contractors, and small businesses are increasingly seeking us out to help solve their cash flow challenges. Triumph also offers smart Asset Based Lending and Equipment Financing options as well as a discount fuel card program.
Triumph is a proud member of the International Factoring Association (IFA) and strictly adheres to the IFA’s code of ethics. Originally called Advance Business Capital, the company joined Triumph Bancorp Group in 2012. As a financial holding company, Triumph Bancorp, Inc. maintains a diversified line of community banking, commercial finance, and asset management activities. Since day one, our vision has been centered on four core business priorities—delivering value, developing people, demonstrating expertise, and displaying a commitment to enterprise success.
Factor your invoices today
Ready to get started? Let Triumph Business Capital help you factor your invoices—and get you the cash you need when you need it.