Compare invoice factoring and business loans to choose the right financing option for your business.
Invoice factoring vs business loan: Invoice factoring offers fast approval (3-7 days), based on receivables not credit, no debt created, but higher cost (1-5% per month) and you sell invoices. Business loan offers lower rates (8-25% APR), you own funds, builds credit, but requires credit check and slower approval (1-4 weeks). Best for factoring: B2B businesses with outstanding invoices, need fast cash, can't qualify for loan. Best for loan: Lower cost, want to build credit, don't have invoices to factor.
| Factor | Invoice Factoring | Business Loan |
|---|---|---|
| Cost | 1-5% per month (higher) | 8-25% APR (lower) |
| Approval Time | 3-7 days (fast) | 1-4 weeks (moderate) |
| Based On | Invoice value (receivables) | Credit, revenue, financials |
| Credit Requirements | Minimal (customer credit matters) | 600+ credit required |
| Debt Created | No (selling invoices) | Yes (borrowing funds) |
| Builds Credit | No | Yes |
| Best For | B2B with outstanding invoices | Most business needs |
Selling outstanding invoices to a factor (financing company) for immediate cash. Factor pays you upfront (typically 80-90% of invoice value), collects from customer, then pays you remainder minus fee.
Learn more about invoice factoring and invoice financing.
Traditional loan where you borrow funds and repay with interest. Fixed monthly payments, lower rates, builds credit.
Learn how to get a business loan and explore all loan programs.
Scenario: Need $50,000 (from $60,000 invoice)
Note: Factoring cheaper if invoice paid quickly (1-2 months). Loan cheaper if you need funds longer term. Factoring cost increases with time.
Depends on timing. Factoring cheaper if invoice paid quickly (1-2 months). Loan cheaper for longer-term needs. Factoring fees accumulate over time, so cost increases if customer pays slowly.
Yes, many businesses use both. Use factoring for immediate cash from invoices, loans for other needs. Can complement each other.
No, factoring based on invoice value and customer credit, not your credit. Good option if you can't qualify for loan but have quality invoices.
With factoring, factor typically assumes risk (non-recourse) or you assume risk (recourse). Check terms. With loan, you're responsible for repayment regardless of customer payment.
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