Decision Time: Invoice Finance vs Asset Refinance
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Growing and maintaining your own business is a big responsibility. To do so, you need to ensure that your business has a steady income and sufficient access to external funding opportunities, should they be needed. However, during the early stages, acquiring the funds that your business needs might not be as straightforward as you think. Nevertheless, there are funding opportunities out there, providing you know where to look. If your business is in need of quick cash, there are two finance solutions on offer that could be of assistance - Asset Refinance and Invoice Finance. So to help you make an informed decision, here’s what you need to know.
Asset Refinance gives you the opportunity to raise capital using your business’ unencumbered assets. This can include equipment, machinery or vehicles that aren’t fixed into the structure of your premises, and aren’t currently subject to another finance agreement. By choosing to use Asset Refinance you could release up to 100% of the equity that the concerned asset contains, after it has been appraised by a qualified surveyor. Plus, because Asset Refinance isn’t subject to any usage restrictions, it could provide funds for any number of purposes, including working capital expenses, growth projects, purchases or even emergency support. This form of lending also offers terms of up to 5 years, during which you make Fixed Monthly Repayments, plus interest. However, it’s important to be aware that Asset Refinance is a secured form of lending. Although this helps raise lender confidence, it does mean putting the concerned asset at risk of repossession should your business default on the repayments.
Meanwhile, Invoice Finance provides you with yet another way of supporting your business, using your unpaid business-to-business (B2B) invoices. By using this form of finance you could release up to 90% of the capital subject to any B2B invoice worth at least £5,000 for any number of purposes, including working capital expenses, growth projects, restocking supplies, inventory or emergency support. Once the debtor (your customer) has fully repaid the invoice, the lender will release a balance to your business minus costs and fees.
Like Asset Refinance, Invoice Finance is a secured product. But rather than using unencumbered assets such as machinery or equipment, this security comes from the capital contained in the unpaid invoice. So, if the debtor (your customer who is responsible for repaying your business) fails to resolve what they owe within 120 days of the agreement being established, your business will need to repay the lender instead. Nevertheless, there are two types of Invoice Finance available: Factoring and Discounting.
If your business has an annual turnover of at least £25,000, you could be eligible for Invoice Factoring. This solution requires you to maintain up-to-date business ledgers but does give you the option of allowing lenders to pursue the debtor on your behalf. Plus, some lenders may also offer you Bad Debt Protection, safeguarding your own business in the event that your customer goes bankrupt or doesn’t pay what they owe.
Meanwhile, if your business generates an annual turnover of at least £100,000, you could benefit from Invoice Discounting. As well as maintaining up-to-date ledgers, Discounting also requires you to exercise robust credit control procedures, ensuring that the debt is collected on time. But, rather than having your customer repay your business, they’ll make payments directly into a lender controlled facility. Once they’ve fully repaid the money they owe, the lender will then release a balance (e.g. the remaining 10% of the invoice) minus costs and fees to you.
Looking to raise funds for your business?
Although you may have any number of exciting plans for your business’ development, acquiring the necessary funds to turn them into reality can be frustrating, especially if you’re a developing SME. But rather than using your own savings or abandoning vital projects, there are many ways in which you could raise the funds that your business needs. All you have to do is choose an appropriate finance solution. However, with so many different products and lenders available, how can you be certain that you’re looking in the right direction?
At Rangewell, we’re an Access to Finance specialist who have mapped over 400 lenders to offer you an overview of more than 23,000 business finance products. Our services are free to use and we’ll also guide you through the application process. So if you’re looking raise funds for your business, apply for Business Finance today or find out more with Rangewell.