When it comes to improving your business cashflow, funding is often a necessary choice. However, when it comes to financing for SMEs, the number of options available and many traditional forms of lending may seem few and far between. Fortunately, thanks for financiers such as GapCap, there are plenty of alternative funding options available, such as selective invoice finance.
So, if you’re looking to improve your cashflow, which is right for you? Selective invoice finance or business loans? Read on for our assessment of both contenders;
What is selective invoice finance?
Selective invoice finance is a flexible way to release funds that are tied up in invoices. You simply upload the invoices you want to release funds from. The lender will release up to 85% of the invoice’s value. When the client pays the invoice, the rest of the funds are released to you, minus a small processing fee.
This is ideal for quick cashflow support and can be a flexible solution that businesses can use as and when it is needed.
What is a business loan?
A business loan is a traditional form of lending and, as such, it is one that most businesses will first consider. However, it can be very difficult for SMEs and start-ups to be accepted for a loan. A business loan will be a set figure that is given to the business. The business will then need to repay the loan, plus any fees and interest in installments over a fixed repayment term which is usually between one and ten years.
The benefits of selective invoice finance over business loans
You are in control of how often you want to use a selective invoice finance system. You only need to use it when you need to improve your cashflow. On the other hand, if you take out a business loan, that commitment of repaying a set amount each month does not go away until the loan is fully repaid.
- Cashflow improvements
Invoice finance is a great way to improve your cashflow in the short-term. Meaning you are in a position to conquer any obstacles or can invest the money in growing your business. A business loan will provide a lump sum of cash which can initially help cashflow, but once this money has been spent, cashflow may be even harder to manage as you then need to factor in loan repayments.
A business loan can be challenging to acquire for many SMEs. However, invoice finance can be much easier to access. For example, GapCap will onboard SMEs that are UK limited companies with more than six months of trading. Business loans usually require firms to submit years of accounts, trading history, turnover, credit history and growth projections. Even then, the funding may still be denied.
Advantages of business loans over invoice finance
- Large lump sum
Business loans are useful if you need a large sum of money in one go. This could be to fund a specific purchase, for example. With selective invoice finance, you will only be able to receive a large lump sum like this if you have invoiced a high amount.
- Consistent repayment terms
If you like to have a clear map of your expenses and do not worry about unexpected peaks and troughs of cashflow, then a business loan will provide set monthly repayment terms, so you know exactly how much is going out every month.
Which is better?
While both funding options have their different benefits, the flexibility and versatility of invoice financing mean it can be used alongside other funding options such as a business loan. If you are looking for innovation and flexibility when it comes to improving your business finances, alternative finance options such as our GapCap solutions can be a great choice.
We have already helped brands such as Dash Water take control of their finances by being able to draw down early on their invoices. This means the business does not have to worry about lengthy payment terms and instead has the cashflow ready to fuel business growth.
If you want to improve your cashflow and enjoy the benefits of flexible funding, get in touch with GapCap to find out how we can help.