Invoice Finance vs. Business Loans: Which Is Better for Your Cash Flow Problems?

For over 35 years, we’ve been helping businesses overcome cash flow challenges with tailored, accessible finance solutions. Whether invoice finance or a business loan is the right fit for your needs will depend on a few key factors.

We always recommend speaking with a lending specialist for advice tailored to your business – but this guide is a great starting point to help you compare invoice finance and business loans.

What is the cause of your cash flow problems?

This might seem like a simple question, but a clear understanding of the factors affecting your business’s ability to cover operating costs, invest in growth, or manage cash flow is key to choosing the right finance solution.

Are late invoices causing gaps in cash flow?

One common challenge small and medium-sized businesses face is late payments. If your business is regularly chasing up overdue invoices from clients, you’re not alone. The downside is that cash owed to you – which could be used as working capital – ends up locked away and out of reach.

If this is the cause of your cash flow issues, invoice finance may be the right solution for you. It allows you to access the funds tied up in your outstanding invoices. A lender like ScotPac can provide up to 80% of the invoice value upfront, so you can use the funds to manage operations, order stock, or invest in growth.

When the invoices are settled, you’ll receive the remaining balance less any associated fees.

Is a significant expenditure causing cash flow management issues?

Alternatively, your business may need a one-off injection of cash – perhaps to renovate your workspace, upgrade equipment or machinery, or restock inventory.

When you need a lump sum to create short-term breathing room, a business loan is often the most suitable solution.

Both secured and unsecured business loans allow you to access a set amount and repay it over time (with interest) in consistent, predictable instalments to help keep your cash flow manageable.

What is the difference between Invoice Finance vs Business Loans?

While both invoice finance and business loans can support cash flow, they serve different strategic purposes.

If your customers are slow in paying you, consider invoice finance. If your business needs to invest in a big purchase or a project, consider a business loan.

Which approval process is faster?

It depends on the product and the lender. Some unsecured business loans can be approved very quickly – sometimes within 24 hours. Invoice finance can also offer fast access to working capital, but it may involve more initial setup if you’re a new client. Once established, however, accessing funds from your invoices is typically fast and straightforward.

Which has more predictable repayments?

Business loans offer fixed repayments – both in amount and timing – so you’ll always know what’s coming out of your account and when. This can make budgeting and forecasting easier.

With invoice finance, there’s no fixed repayment schedule. Instead, the facility is repaid when your customers pay their invoices. This means the timing can vary depending on how promptly your customers pay, but there are no set instalments coming out of your cash flow.

Which requires security?

Invoice finance typically doesn’t require traditional collateral such as property or equipment. Instead, your outstanding invoices act as the security for the facility.

Business loans, on the other hand, can be either secured or unsecured. Secured loans usually require an asset to be pledged as collateral and may offer lower interest rates. Unsecured loans don’t require collateral, but they may come with higher interest rates and stricter eligibility criteria.

Which has lower interest rates / fees?

The overall cost of finance will depend on a range of factors, including the lender, your business’s credit profile, and how you plan to use the funds.

Business loans typically come with an interest rate applied to the total amount borrowed, along with possible additional charges such as establishment or service fees.

Invoice finance works differently. Instead of charging interest on a lump sum, lenders apply a fee to each invoice you choose to finance – usually as a percentage of the invoice value. This may also include an ongoing service or management fee.

How to Make the Right Choice for Your Cash Flow Problems?

Ultimately, the right finance solution will largely depend on what your business objectives are.

Do you want to grow naturally?

Invoice finance allows you to scale your funding facility alongside your business. So, if your company is on an upwards trajectory and you just need an early access to the outstanding invoices owed to you, it may be the right solution.

Do you want predictable repayments?

For many business owners, having predictable and regular repayments is more suited to their cash flow management style and needs. If this is the case with you, consider a business loan.

ScotPac – your partner in cash flow management success

Cash flow pressures can be overwhelming and hard to manage on your own. That’s why our lending specialists work with you as partners – to help your business stay on track and keep moving forward.

Across Australia and New Zealand, ScotPac supports more than 9,300 businesses – so we know what it takes to solve cash flow challenges for SMEs.

If you’d like a one-on-one consultation to explore the best funding option for your cash flow needs, get in touch today.