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Bank Loans or Invoice Factoring? Which Is Better For Your Business?

You need money for your business. There are a lot of options available for business financing with bank loans, lines of credit, online lenders, equipment financing, and invoice factoring. With 82% of failed businesses citing cash flow as a reason, finding the right business financier is a top priority for entrepreneurs. Seeking a bank loan is typically the first strategy for business owners. When you have a new business and need startup funding, it can be hard to be approved for a traditional bank loan. Here is where invoice factoring, also known as accounts receivable funding, excels as a funding source for your business. Rather than waiting the 30 to 90 days for your customer to pay for your goods and services, a factoring company advances the customer payment on your open invoices. So how does a traditional bank loan compare to factoring services?


Traditional banks evaluate your business on multiple levels before approving a business loan. This process can take 2-3 months before you have access to business funding. First, lenders will look at your personal credit and usually require at least a score of 650. Established businesses must also submit a business credit report. Online small business loans typically require at least a year in business, but traditional banks may demand two years or longer of time in business. Next, does your business bring in around $100,000 in annual revenue? $50,000 is on the low end for approvals for loans, so if your business falls under $100,000 you may be hard-pressed to find a bank loan. Even still, a secured loan may require collateral—either business equipment, inventory, or a personal home. Last, a bank will want to know your intent with the funds. There may be restrictions associated with how you spend the money.

Eagle Business Credit evaluates the credit score of your customers, not your business. A new start business or a business with poor credit may still be eligible for working capital funding. No personal collateral is demanded, and approval processes can take between 1 and 3 days.


Traditional bank loans entail your funding potential being capped at a set amount. This is fine if business is steady, but business growth requires more capital from supplies to production to distribution costs. Being unable to access more working capital means being unable to expand your business. This is when business owners can turn to online lenders for Merchant Cash Advances, often paying sky-high interest rates on the money advanced.

Working capital funding strategies grow with your business. The more sales you make, the more funding that is available to you. Additionally, factoring services are well-suited for funding growing businesses. A common barrier for growing businesses is insufficient cash flow. A factoring company knows this and works for your business to improve your cash flow, so you can cover overhead, expansion, and supplier costs.


Bank loans are considered to be the most cost-efficient method of business funding, if you qualify for one. Some concerns with the amount of funding and cost available to your business rely on your time in business and credit scores. Banks look not only at your business credit but also your personal credit. If business slows down, your personal assets are at risk. If the federal funds rate increases, you could be facing more expensive loan repayments. Selling your receivables is not tied to interest rates or the federal funds rate that dictates the prime rate.

Further Support

Invoice Factoring Services with Eagle Business Credit include full back office support. Access to credit information on your clients, and collections services are included free in your factoring services. We handle the collections process, saving you time and stress as you continue to run your business. As a debt-free method of financing, factoring does not create debt on your balance sheet. You made the sale, and you are waiting to be paid. Factoring cuts down on that waiting period to provide your business with the necessary available working capital to keep operating.


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