Invoice Financing vs Term Loans

Finance is required for any business to meet its cash requirements. Banks and financial institutions provide various financing solutions. Finding the right option per business needs and requirements is essential to ensure no shortfall of cash.

Meaning of term loans

A term loan is a specified amount that needs to be repaid in regular instalments over a set period. Banks/financial institutions usually grant such types of loans. Term loans are issued with a fixed or floating rate of interest. The lender will set a repayment schedule according to the borrower’s financial situation. It will verify the applicant’s creditworthiness and other financial reports to decide on the loan amount and interest rate.

Businesses usually take term loans to buy fixed assets or for expansion purposes. It is usually a long-term loan to be repaid in instalments.

Meaning of invoice financing 

Invoice financing is short-term finance. Under invoice, financing can raise funds by keeping its outstanding sale invoices as collateral. No asset needs to be kept as collateral. Therefore, it is also called ‘receivable financing’. It facilitates self-generating cash flows to meet its day-to-day expenses such as salary, wages and other operating expenses. 

It needs to be paid off on the invoice due date. Unlike term loans, there are no repayment schedules or fixed instalments. 

Difference between invoice financing and term loan