Differences Between Business Loan And Invoice Discounting:

Sufficient inflow of capital is undoubtedly one of the essential requirements of running a business successfully. An enterprise that is low on its growth capital or working capital is susceptible to losses, and can miss out on lucrative opportunities. Further, without adequate funds, a business falls short to maintain its working capital and liquid cash reserve, which in turn hampers its everyday operating activities.

Regardless, financing options like business loans and invoice discounting, ensure that enterprises have access to adequate funds at all times, irrespective of its business cycle. It is, however, vital to understand, which one is better for an enterprise and can help to resolve the debate of business loan vs invoice discounting.

What Is A Business Loan?

A business loan is a kind of a credit that is designed to cater to specific business purposes. In most cases, a business loan is an unsecured credit, i.e. borrowers do not have to hypothecate any asset as collateral. Nonetheless, some financial institutions may allow enterprises to avail secured business credits by providing an asset as a security. Typically, a secured business credit accompanies a lower rate of interest. 

Generally, individuals avail a business loan to start a venture, keep business operations smooth, or to expand the scale of operations and operational units.

Types Of Business Loan:

Following are the different types of business loans available –

• Working capital loan
• Equipment loan
• MSME loans
• Business loans for women

Let us now take a look at the fundamentals of invoice discounting to gain a better idea about business loan vs invoice discounting. 

What Is Invoice Discounting? 

Invoice discounting is an alternative form of financing, wherein businesses can sell their outstanding accounts receivable or invoice to a financier to avail working capital. The said financing option is an effective means of releasing cash that is blocked in unpaid invoices and in turn, helps to increase the immediate cash flow of a company.

Like business loans, individuals do not need to provide any security to access funds via invoice discounting. In fact, with this financing option, the unpaid invoices in themselves serve as security, and help to avail funds by leveraging the company's sales ledger. 

Unlike business loans, invoice discounting is a more flexible funding option that does not require businesses to meet stringent eligibility criteria. Further, the entire process is quite hassle-free, and offers access to a significant portion of the invoice amount. 

With KredX's invoice discounting service, businesses can raise funds to meet their immediate cash flow requirements instantly within 24 - 72 hours*. 

Types Of Invoice Discounting: 

These are among the noteworthy types of invoice discounting –

• Confidential invoice discounting
• Turnover invoice discounting
• Selective invoice discounting

Let us now proceed to find out about the fundamental differences between a business loan and invoice discounting. 

Difference Between Invoice Discounting And Business Loan:

The table below offers a fair idea about the most noteworthy differences between a business loan and invoice discounting. A quick glance makes the concept of business loan vs invoice discounting simpler –

Businesses should always factor in their requirements and repayment capability before opting for any of these financing options. They should also check the terms of services to understand the difference between business loans and invoice discounting, and consider which option is better for them.

Also, at KredX, you can avail cash flow solutions and resolve all your working capital related challenges. While you are at it, check our growth capital solutions like – revenue-based financing and lease rental discounting to achieve business growth and expansion.