As an entrepreneur, it can sometimes be difficult to get enough capital to grow your business. A business loan and factoring are two possible options to solve this problem. In this article, we will discuss the pros and cons of both options, so that you can make an informed decision on what best suits your business.
Business loan
A business loan is a loan given to a business owner to invest in their business operations. The borrowed amount has to be repaid with interest within a certain period of time, often in monthly instalments. The interest you pay depends on the amount borrowed and the term of the loan.
Advantages
- You retain full control over your business.
- You have the option to use the borrowed amount for any investment you want, such as new equipment, staff expansion or marketing.
- You only pay interest on the amount you actually borrowed.
- The interest rate is often lower than other forms of financing.
Disadvantages
- The application process can take a long time and many documents are needed to obtain the loan.
- You have to repay the borrowed amount even if your business goes bankrupt.
- You need a good credit history to qualify for a business loan.
- There may be additional costs associated with the loan, such as administration fees.
Factoring
Factoring is a way to get cash quickly by selling outstanding invoices to a factoring company. The factoring company pays you an advance on the invoice and takes over the risk of non-payment. Once the invoice is paid, you get the remaining amount minus the factoring fees.
Advantages
- You have quick access to cash, allowing you to grow your business quickly.
- The factoring company takes over the risk of default, reducing your risk.
- You have no additional debt, as factoring is not a loan.
- You have no time and costs in debtor management, because you outsource it
Disadvantages
- Factoring fees can be higher than the interest rate on a business loan.
- You have less control over your own debtor management, as the factoring company takes over the management of your outstanding invoices.
Choose what suits your business
Both forms of financing have their pros and cons. It remains important to carefully consider what suits your business best. If you like to maintain control over your debtor management, then a business loan is a better option. On the contrary, do you want to outsource as much as possible? Then factoring is an ideal outcome. With factoring from Factris, you run less risk of default and can outsource debtor management. Would you like to know more about the possibilities of factoring? Then feel free to contact us.