A term loan gives you a fixed amount now and a fixed repayment schedule. Invoice finance advances money against work you have already invoiced, and grows as your ledger grows. Both put cash in the account. They behave completely differently afterwards.
The question that decides it
Ask what the gap is. If you need money for a defined, dated purpose and you know when the return arrives, a term loan is usually cleaner. If the gap is structural, because your customers pay in ninety days and your staff are paid every fortnight, a term loan only postpones the problem. Invoice finance addresses the timing itself.
Where invoice finance wins
- The facility scales with revenue instead of needing renegotiation
- Underwriting weighs your customers' credit as well as your own, which helps younger businesses
- It is secured against the invoice, so property is often not required
- It does not add a fixed monthly repayment during a slow month
Where a term loan wins
- Your customers pay quickly, so there is no ledger to lend against
- You need the money for something that will not generate an invoice, such as a fit-out
- You want the debt to end on a known date
- Your ledger is concentrated in one or two customers
The comparison people get wrong
Invoice finance is often quoted as a percentage per invoice, and a term loan as an annual rate. Those numbers are not comparable. A 2 percent fee on an invoice paid in thirty days is not a 2 percent cost of money, and presenting it that way is how a facility gets mis-sold in either direction.
Ask both lenders for total cost over twelve months on your actual expected usage. If a broker will not produce that, it is because the comparison is unflattering.