When searching for small business funding, you are likely to come across online loans as an option. Further, invoice factoring is another common way to finance your small business growth. Both options are great for small businesses, depending on your specific needs. Here are the differences between online loans and invoice factoring.
What is an Online Business Loan?
Online Loans boast high approvals, quick funding, and easy applications. The Great Recession led to banks extending less loans to businesses and an opportunity for online lenders to step in. Thus online and alternative lenders filled the lending space and offered money to all sizes of businesses.
Online Business Loans
Online Lenders offer immediate cash and are usually a business owner’s last resort. Bank loans and lines of credit offer the best interest rates, but the approval rates and wait-time for funding can often make these options unattainable for a small business owner. Online lenders offer quick working capital loans, but they come at an exorbitant price. Interest rates attached to online loans are between 13% and 71%. Traditional lenders, such as large banks offering business loans, typically range between 2.5% and 5%. This makes seeking a small business loan from a large or regional bank the most appealing option for small business owners.
Online lenders require less documentation from loan applicants. This draws many entrepreneurs to apply for an online loan. Due to the higher risk factor, many online loans have monthly, weekly, or even daily repayments. Missing payments incurs fees on top of already high payments which your business may not be able to afford in a time of growth.
The Difference Between Online Loans and Invoice Factoring
If your goal is to build business credit and eventually apply for a traditional bank loan, be sure to choose a lender that reports your payments to credit bureaus. A benefit of an online loan is the access to more capital that a bank may not extend to your business, but again, this working capital comes at a higher price. Other financing methods may give your business less expensive funding. If you are willing to trade equity for capital, investors or crowdfunding may be better for your business than an online business loan. Additionally, many business owners have not heard of accounts receivable funding, otherwise known as invoice factoring.
Invoice Factoring Services
Factoring involves the sale of receivables to a factoring company in exchange for immediate cash to continue to fulfill orders, take on new clients, and cover payroll and daily business expenses. Factoring is neither debt nor equity-based, so your business is still run solely by you. Financing receivables allows your business to return to the core of operations rather than managing your accounts receivable and creating stress over cash flow constrictions.
Invoice Factoring USA
Invoice Factoring offers quick access to funding, with an average time to fund resting between 1 and 3 days. Our factoring fees are transparent and range between 1% and 4% depending on the quality of your debtors. Waiting to get paid can slow your business and cause a cash flow crunch. Rather than high interest rates and daily repayments, accounts receivable funding is a debt-free method of finance. The money is yours, we are just getting it to you faster.