Deciding to take on a loan is a huge step for any small business. With so many loan products available, it can be a little overwhelming to determine which option works best for you. Unfortunately, there’s no one-size-fits-all and the best type of loan depends on the needs of your business. However, if you need fast cash for short-term needs, you might want to apply for invoice financing.
What is Invoice Financing?
Invoice financing gives you immediate access to additional working capital without having to borrow money. With invoice financing, you can sell your outstanding invoices to lending companies in exchange for upfront cash. However, invoice financing is typically not a loan; it’s an advance of the money that’s already owed to you by your customers.
Here’s how it works; you sell your pending invoices to a lending company. The lending company will immediately pay you 80% to 90% of the total invoice value which you can use it once it’s deposited in your account. The remaining balance, minus a small fee, will be given to you once your customers pay their invoices.
Invoice financing can also be helpful for businesses that can’t afford to wait for 30 to 90 days before getting paid. By financing your invoices, you’ll have the working capital you need to grow your business. The following are seven reasons why invoice financing is an ideal solution for a small business.
1. It’s fast and convenient.
If you’ve applied for traditional small business loans before, you know first-hand that it’s a slow process. Loans from banks take a lot of time and if you need cash fast, you’ll need to look for other ways to fund your business.
Invoice financing is the ideal funding solution for short-term business needs because it’s fast and convenient. Alternative lending can fund your business within 24 to 48 hours, allowing you to immediately address expenses such as buying inventory, making payroll, and taking on new projects.
2. You don’t need collateral.
Many small businesses fail to qualify for financing because of the lack of collateral. Fortunately, with invoice financing, you don’t have to put up any of your business and personal assets since the invoices serve as collateral for the loan.
This option is perfect for small business owners who need fast cash but don’t have the assets to secure a traditional loan.
3. It does not affect your credit score.
One of the major benefits of invoice financing is that it doesn’t affect your personal credit score. With bank loans, the borrower’s credit history is considered because it constitutes as a secured debt. Since you’re using your invoices, the transaction is not a debt, but rather a sale. Lending companies will check the face value of each individual invoice.
4. It gives your business ongoing cash flow.
Unlike a business loan, invoice financing doesn’t have to be a one-time financing option. If you can find a reputable lending company, you can build a lasting relationship with that company if it makes financial sense for your business. In fact, it will be easier for you to finance your invoices after the initial transaction with your lender. If you finance your invoices, maintaining a healthy cash flow won’t be a problem any longer.
5. You borrow money against your assets.
When small business needs working capital, the first thing they think of is to take on a loan. However, it doesn’t make any sense to add to your debt if you already have a stack of expenses waiting to get paid. With invoice financing, you don’t have to take out a loan because you can borrow against your pending invoices.
6. You have a better chance of approval.
Credit scores, loan history, and collateral aren’t major key players if you apply for invoice financing. Instead, the lending company will be more interested in your customers’ payment history. After all, they’re the ones paying for the invoices.
By checking their creditworthiness, this gives lenders a good idea of the risk level they’re going to assume, should you qualify for invoice financing. If you have a poor credit rating or you don’t have assets to secure a loan, invoice financing can be the perfect option for you.
7. You can improve relationships with your customers.
Business owners generally have a lot on their plate, including the tasks of collecting debts. If you apply for invoice financing, you’ll hand over the collection of payments to the lending company. As a result, you can create and maintain a lasting and positive relationship with your customers.
Apply for Invoice Financing Today!
Before you apply for invoice financing, it’s important you understand that lenders typically charge a transaction fee for the service rendered, and it’s often a percentage of your total invoice value. Be sure to do the math to ensure that when applying, it makes perfect sense for your business.