Invoices are an asset of the business and can be use as security for borrowing. Whether this is to cover your regular running costs, or grow your company to the next level, the lender will handle all aspects of your sales ledger and cash flow once the invoice has been raised.As well as looking at why this may be a viable route to take for your organisation, we will also examine how you would set about securing finance against your invoices.
Obstacles Facing Getting a Traditional Bank Loan
The first option that many business owners look at is securing a traditional bank loan. However, several obstacles may be preventing you from getting one. First, you may have a poor credit history, which will raise red flags among major lenders. Small businesses often struggle to get a bank loan with a credit score of less than 700. Banks also like to see that you have a clear and comprehensive business plan, so the issue may lie with the fact that you do not have one.
It may be a simple lack of organisation that is preventing a company from getting a bank loan. These are fastidious institutions that often require volumes of paperwork such as business licenses, franchise agreements, general registrations, etc. If this is not in order, the consequence could be not getting a loan. Also, a lack of research can be a problem. There are several different types of bank loans out there, including short- and long-term loans, secured and unsecured loans, merchant cash advances, and equipment financing. Asking for the wrong one could see a business rejected and left without the help they were seeking.
Is Invoice Financing Right for Your Business?
First of all, we need to look at what invoice financing actually is. Essentially, it is a way to borrow against invoices that takes into account how much is owed by customers. Small businesses often struggle with their cash flow situation, but invoice financing can help as it allows common expenses to be covered and reinvestment opportunities dealt with. Otherwise, the company would have to wait for all of these invoices to be paid in full – and this can be a time-consuming operation.
Essentially, the company involved will pay a percentage of the total amount that is owed to the lender as a fee. As well as understanding clearly how much you can borrow, it also tends to be an option that does not involve jumping through as many hoops, and money can be easier to acquire. The lender tends to pay between 75% and 90% of the total value of the invoice upfront.
What Type of Businesses Could Benefit from Invoice Finance?
Some businesses can clearly benefit from a secure business loan against invoices. Any company that trades with other businesses certainly fits into this category as there are invoices that can be used as collateral. Also, those that issue invoices involving long payment terms of 90-days or more can benefit as the cash flow situation can become quite stretched. Both established businesses and start-ups can find themselves in the position of needing to get invoice financing.
Of course, there are also businesses that have been unable to get traditional financing from banks and other lenders. There are also those that have had loans in the past or who currently have loans but are unable to increase their existing line of credit. The reasons for wanting this type of loan will vary but can include wanting to finance growth, expand into new markets, handle seasonal demand, etc.
What Will Lenders Check?
There are several different elements that lenders will check before offering an invoice loan. First of all, they will examine your credit history in more detail, as well as your clients’ credit history. Not only this, but they will also look at the type of invoices that your company commonly uses – whether this is long- or short-term contracts. Naturally, they will also want to know the procedures that you put in place to ensure that your invoices are consistently paid. Your business plan may also be taken into account.
What to Expect with Funding for Invoice Finance
There are several different elements that you can expect from funding for invoice finance from TSF. First of all, you can gain access to fast cash with a lender matched with your needs. You can also get much-needed peace of mind and a process that is straightforward. Growth can be achieved in line with your sales, and you can fulfil bigger orders. Alternatively, cash flow relief may be provided from unpaid or late invoices, which leaves you to focus on other areas rather than waste it chasing up clients for invoices. Ultimately, it is worth choosing a finance partner that makes the process straightforward, giving you both time and money back.