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Anyone looking for a financing solution might be wondering if a business loan or invoice factoring is the better choice. Before you decide, it’s important to understand the pros and cons of each type of financing solution.Business Loans vs Invoice Factoring

What are Small Business or Term Loans?

A term loan or small business loan is one of the most popular types of financing for small businesses. You might get a business loan from a bank or from the Small Business Administration. This loan comes in a lump sum and must be paid back with interest. When considering a term loan, it’s essential to be familiar with the conditions, including the amount of time you have to pay it back and the interest rates. You may want to look into various loans and identify one that has the most favorable terms.

Pros and Cons of Small Business Loans


  • You receive a sum of money upfront, which can be useful if you want to make a large purchase for your business.
  • The financing cost is generally lower.


  • Business loans can be difficult to obtain for newer businesses or if you don’t have sufficient collateral.
  • It can take a long time to get approved and obtain the funding.
  • You take on debt that can put a strain on your finances in the future.
  • You are generally limited by the amount of the loan and since the lender of the business loan generally files a blanket UCC filing, it can be difficult to qualify for other types of business financing

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What is Invoice Factoring?

Invoice factoring is an alternative type of financing where a factoring company pays you upfront for invoices so you don’t have to wait for the typical 30, 60, or 90 days business customers  may take to pay. Non-recourse factoring isn’t like a loan in that you don’t incur any debt. Fees are taken directly out of payments you receive.

Pros and Cons of Invoice Factoring


  • Easier for new businesses to obtain.
  • You can obtain funding within days of applying.
  • You don’t take on any new debt.
  • Financing that can grow with your business.
  • Provides back-office support such as billing, collections and reporting.


  • Not all businesses qualify. You must have business customers who you invoice and wait to be paid. Brand new businesses that don’t yet have customers don’t qualify. Nor do businesses that get paid at time of sale, such as retail businesses.
  • Depending on the type of factoring, you may be responsible if clients don’t pay. With recourse factoring, you are responsible for reimbursing the factoring company if your customer does not pay for any reason. Non-recourse factoring, however, you aren’t liable for unpaid invoices if the customer doesn’t pay for credit reasons. 

What to Consider When Comparing Small Business Loans to Factoring

If you are looking at these two types of financing, you need to consider your needs and qualifications.

  • Does your business collect on invoices?
  • Are you likely to qualify for a loan?
  • What do you need the money for? A loan may be better for a large purchase while factoring is ideal for paying ongoing expenses.

While both business loans and invoice factoring can be viable financing solutions, many businesses in a start-up or growth phase find that invoice factoring is easier to qualify for and provides a flexible cash flow solution. If you want to apply for invoice factoring or learn more about it, Riviera Finance has been providing businesses in many industries with factoring and other financial services for half a century. 

To find out more about invoice factoring, contact Riviera Finance today.

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