Your Business

Why your business should consider invoice finance over a business term loan

Team Waddle  •  08 November, 2021

As a business owner, you’re probably well aware that getting a traditional business loan isn't always easy. When it comes to business finance, people often think of a term loan first — a lump sum loaned to a business, that comes with a fixed term, regular repayments and interest. But there’s another form of business finance that is often overlooked: invoice finance.

We discuss the reasons why invoice financing might be a better fit for your business than a term loan.

Nothing to pay until you get paid

A business term loan requires periodic repayments — plus interest — over the life of the loan, regardless of whether you’ve got the money or not. Many businesses handle this loan model fine, but what happens if you’re short on cash when your repayments are due? This is where the risk of late payments and defaults rise. With cash flow concerns and business-related stress rising, you could start to see cracks emerge in all areas of your organisation.

With Waddle invoice financing, your facility is automatically paid down when your customers pay their invoices. The money goes straight from your customers to the lender to pay down the facility, with any excess being made available to you after interest and fees are deducted.

Invoice finance benefit: For businesses with uneven cash flow, it can be a huge relief not to have to rustle up cash every month to make loan repayments on time. It can also help your relationship with your customers because you'll be able to provide your goods and services to them on credit terms without having to be worried about when they'll pay you.

Flexibility with cash flow

The rigidity of a term loan can make for easy budgeting, but you’re bound by the conditions of the loan. Regular repayments, interest charges and a fixed term aren’t things that fit into every business’s finance requirements — especially when they only need to use finance occasionally.

When you take out an invoice financing facility with a lender such as Waddle, you are extended a line of credit up to the value of 80% of your unpaid invoices. Because it is a line of credit, you are free to draw down any amount up to your credit limit, as you need it. You don’t have a lump sum accruing interest from the get go as you do with business loans.

The facility is linked to your invoice ledger, which means as your sales figure grows, your line of credit can grow too. This can provide the cash flow needed to keep building momentum to grow your business.

Invoice finance benefit: Your line of credit can quietly exist in the background for those moments when you’re short on cash. You can have finance available to manage gaps in cash flow without having to keep on top of regular loan repayments.

No asset security required

If you take out a secured term loan, you need to have business or personal assets (like the family home!) to offer as collateral in case you can’t repay the debt. Many businesses either don’t have valuable assets to offer as security or if they do have valuable assets, they’d rather not have them tied up in their business finance arrangement.

A lack of assets isn’t an issue with invoice financing, because the line of credit is offered against your accounts receivable ledger. This means the only security necessary is the invoices themselves! If you’ve issued invoices to your customers and you’re waiting for them to pay, invoice finance might be a valid finance option for you.

Invoice finance benefit: Since you’re borrowing against invoices, you are borrowing money that is already yours, you’re basically just having the cash advanced. This means there is a lower risk for you — the borrower — because you don’t need to offer any of your business or personal assets as security to receive finance — which is handy if you don't have any! It also means there is a lower risk of default than a term loan. This is because you can expect to receive payment for the invoices you’ve financed, whereas there’s no guarantee you’ll generate a return on the funds borrowed via a term loan.

New businesses are eligible

Trying to get approved for a term loan as a new business can be an impossible task. Without any trading history or past financial information, there are few ways of convincing a lender that you’re capable of paying back the loan. And if you do manage to score yourself a business term loan, you can bet your bottom dollar the fees and charges, as well as the interest rates will be excessively inflated on account of the extra risk the lender is taking on.

With invoice financing, the focus is mainly on your customers who owe money on invoices and how likely they are to pay them — so we don’t rely as heavily on your trading history or financials as lenders offering a business term loan would.

Invoice finance benefit: If you’ve been in business for a minimum of six months and you're issuing invoices to business customers, you could be eligible for invoice financing.

Allows you to focus on running your business — with reduced stress!

When a business term loan is taken out, it’s done so for a particular purpose. For example, to purchase equipment, a vehicle, property or something else tangible. With a term loan, there are repayments that must be kept on top of. This can cause tension if your customers are taking their time paying their invoices — and could even damage your relationship with them.

Invoice finance provides the cash flow needed to hire staff, explore new opportunities, invest in equipment, property and infrastructure, all of which directly help you grow your business. Because the cash you’re expecting from your invoices has been accelerated, you don’t need to chase your customers for the money — you’ve already got it! You’re free to dedicate your attention to growing your business while letting the finance take care of itself.

Simple application and approval process

With small and medium businesses struggling to secure finance, even if a term loan makes sense for your business, it could take a long time to secure the funds you need. This could cause significant cash flow problems if you need the funds immediately — which is what invoice financing can offer!

Waddle's imvoice finance integrates with your accounting software to make the application and assessment process quick and easy. Once connected, you can see an indicative offer in seconds, based on your invoice ledger — all required documents can be uploaded online, simplying the credit approval process. If your business has been rejected for other types of business finance, invoice financing might be able to help.

Invoice finance benefit: A convenient application and approval process means you can get the finance you need without your business skipping a beat.

Get an offer in a few clicks with Waddle

If you're thinking about a business loan and you’d like to learn more about what invoice finance can do for your business, please visit the homepage or get started with us today!

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