When it comes to the world of finance, there are two ways in which companies can choose to go about getting funding. One is through borrowing from a bank and the other is through invoice financing. While both offer similar benefits, they are not as alike as one might think.
Here’s why you should consider invoice financing over traditional loans for startups.
What is Invoice Finance?
An invoice is a document that evidences the sale of goods and services, including the amount paid for them. The first use of an invoice was in medieval times when receipts were used instead. As time passed, invoices took over their function, and are now a legal requirement for all businesses to have in place. If you are a small-business owner, then you may have run into Invoice Finance UK at some point.
Invoice finance is a financing model that companies use to raise money from lenders by selling the company’s invoices. It is a process by which your business can borrow against the amount owed to it by customers, suppliers, or any other entity that has an outstanding obligation. The interest rate charged on this debt is generally much lower than on loans secured by assets. The most obvious benefit of invoice financing is that it allows you to raise funds with no upfront costs.
What is the Major Difference Between Invoice Finance and a Bank Loan?
In the context of financing a new or existing business, invoice finance and bank loans are two different tools that offer different benefits to the borrower. To ensure that you get the best loan for your needs, you need to understand the differences between invoice finance and a bank loan. Some people see this as a form of debt.
Bank loans are common financial instruments that provide you with a loan to cover your business expenses. They are generally considered an ideal loan for small businesses because they offer lower interest rates, flexible terms, and a number of other benefits. However, in some cases, it is important to know the difference between invoice finance and a bank loan.
And while that is technically true, it’s not quite the same as what many other businesses are getting into. The biggest difference between invoice financing and typical bank loans is that with invoice financing, your ability to pay back the money is intrinsically tied to your business’ success. You will be able to keep up your business operations and still be able to pay back your loans. If a bank gives you a loan, they might not see any of the funds again.
Why Should Startups Choose Invoice Finance?
Startups have a hard time standing out from the rest because they are new and unfamiliar. That makes it difficult to get investors’ attention. So why not try invoice financing as a way of getting your business off the ground? Invoice financing allows you to sell your accounts receivable, which is pretty much what it sounds like. Essentially, an investor buys some or all of your invoices at a discounted rate so they can collect on them whenever they choose to do so. This allows you to get funding without the traditional hassles.
The process of applying for a loan is not complicated, but it can be time consuming and intimidating. Whether you go through the traditional route or go right to the source, you will have to come up with a lot of documentation. This includes all of your operating documents, various tax forms to get your financials in shape and invoices from suppliers. If you are looking to get enough funding, this can be a big roadblock.
One of the biggest benefits of invoice financing UK is that there are no financial statements required. This means that you don’t have to get everything in order on your end before applying for funding. You can do it all at once or slowly as you need it. There is no waiting and wondering if your application will be accepted or not. Instead, you can get the ball rolling immediately and start using the money to keep your business running smoothly.
Another benefit to this type of financing is that you aren’t locked into a contract or any other obligation that could make your life hard when you run out of funding. You can use it for as long as you need it and then return the proceeds once you are able to pay it back. This means that you aren’t locked into a short-term deal and in fact have the freedom to take as long as you need to repay the loan.
What are the Terms & Conditions for Invoice Finance?
When a company goes for invoice financing or invoice lending, it has to be prepared to meet certain conditions. These conditions include the following:
- Company is an existing business with an existing loan facility with a bank or other financial institution.
- The business has its own account with the bank or any other financial institution in the UK.
- Businesses can secure loan amounts up to 50% of their current working capital or EBITDA.
- The business credit is considered not junk or below investment grade.
- Business is not into any criminal activities, unsafe practices and activities which are a direct threat to public health or the environment.
- The customer who has defaulted his purchases from your business is not a defaulter of another company’s invoice finance.
- If a company does not supply the goods as per the terms and conditions of the agreement, it will have to pay a penalty to the financier.
- Company should be prepared to provide its financial statements from the last three years which have been audited.
- The goods should be of good quality and genuine products which are purchased from credible suppliers.
Invoice finance is a great way for startups to get their business up and running. It’s easy to obtain, and there are no long-term loans involved. This makes it an ideal solution for companies with little or no credit history. In short, if you’re looking for funding options that make sense for your startup, there’s no better choice than invoice finance!
If you need more assistance regarding invoice financing UK, consult with experts at Finance Hub. We are dedicated to helping you find the best possible deal when. With help from our team of invoice finance UK experts, you can have no reason why you can’t be a successful businessman.