Running short on working capital and want to know how you can make use of various business loans in conjunction with invoice financing? If you are, then you are not alone. As businesses deal with reduced cash flow and employees get impacted, we delve into the web of invoice financing, and the best loans that can be availed along with it.
- What is Invoice Financing?
- Difference between invoice financing and invoice factoring
- Line of credit and term loans
- Equipment financing and merchant cash advances
More about Invoice Financing
While there are several misconceptions about invoice financing it refers to the process of taking advantage of funds stuck currently in accounts receivable, and not available as working capital. As part of the process invoices that clients have not paid are used to get loans. The amount which is provided as a loan often differs but sometimes up to 100 percent of the invoice amount can be availed.
Invoice Financing and how it differs from Invoice Factoring
Selling of invoices to a company for up to 80% of the total value is what happens in the case of invoice factoring. The factoring company then takes on the burden of collecting the invoice amount from the client and after retaining a fee you get the balance. While invoice factoring has its advantages, most small business owners take out loans via invoice financing as they retain the right to collect from the client.
Line of Credit
Several loans are available for entrepreneurs or small businesses and one such is line of credit. This loan is either based on credit and revenue history, or they are secured against assets or accounts receivable which are used as collateral. Under this option a specified amount is made available as part of the “credit limit” and you can borrow either part of it or the whole depending on what you need. You will only have to pay interest at a predetermined rate for the actual amount that you end up using. This particular type of loan is ideal, when you require funds to purchase supplies, to meet extra seasonal demands when creating clothing.
Term Based Loans
Lasting for up to several years, term based loans are offered by many banks and come with attractive interest rates. Due to the low interest rates and long payback period, term loans are used for financing new stores and buying equipment that is needed for expansion.
Equipment Financing Loan
Based on the financial health of your business which is verified with the aid of bank statements and tax documents, you can avail of equipment financing loans. Usually this loan requires the car or piece of equipment purchased to be used as collateral. As these loans can be easily secured without the aid of any other collateral they are used along with invoice financing to run a business.
Merchant Cash Advances
Selling a portion of sales that could happen in future and availing of financing in the form of an immediate payout is what happens in Merchant Cash Advances, which are ideal for meeting unexpected cash requirements.
Making use of different loans in combination with invoice financing, businesses of various sizes can keep operating and ensure they have sufficient cash to meet various expenses over the long and short term.