Cpcmcredit Blog

A question many businesses face and one that I frequently advise on. Many readers will know the pros and cons of both options and of course there is a marked difference between the strict term lending of the Loan and the revolving facility of invoice financing. My role is to always determine the best option for the client.

This can come down to a number of factors but the biggest issue I tend to face is preconceived notions. Simply put, many businesses view loans in a more favourable light than Invoice financing. In these cases, Invoice financing is often described by the somewhat derogatory “factoring” and is often followed by tales of cynical practice by certain lenders.

Of course the lenders will claim that “we are not like that now” but the damage has been done. Ive had perfect leads for invoice financing where the business owner would at any cost take out any lending but. I perfectly understand that. Business owners have a tendency not to entirely believe the word of “bankers”.

When its a straight choice between the two options there are certain elements that have to be considered away from the nature and flexibility of the facilities

Firstly business loans are hard to obtain and for SMEs the major banks have all but washed their hands of them. That is an area that maybe needs addressing by a future administration but for now the business lending market is more or less confined to independent specialists. The problem here is that the rates can be horrific (i’ve seen 5% a month on a £250k loan) and the security demands quite intensive

Some of these lenders have nice easy to access websites with lots of smiley emojis and staff who sound young and keen to help. The direct service can be decent but problems can lurk

Invoice financing tends to be promoted by rather more experienced staff and lenders and there is a greater emphasis on getting to know the client and building a relationship. The downside can be the administration of setting up a facility (although there is a newish entrant on the market that has found a way around the worst aspects) but generally, with the assistance of decent broker, it will usually be a cheaper option.

Not much between the two choices perhaps but there is another element which is often not considered because its something that any business owner naturally doesn’t wish to think about. Its security

With invoice financing then security is with the invoices. Yes personal guarantees are often demanded (although only for a fraction of the lend) and I will fight against these, knowing that certain lenders are happy to waive that demand. The reasons given for the PGs by lenders are dated and quite laughable but in truth the fact that the lend is against less than 100% of the assigned invoice value will mean that the lender will invariably collect the liability without having to trouble the borrower. There is a degree of comfort

No such comfort with business loans. Personal Guarantees are likely to be for the full value of the lend and of course, in the event of default that means the business owner is totally liable. The problem here is how the lender reacts. I know some that are open to negotiation but at the same time I’m directly aware of very hard lines taken by a at least one lender using the aforementioned smiley emojis. In fact the line they appear have been taking is nasty and counter productive.

No one likes to think of worst case scenarios but it say role to explain the possible exposures and also to give guidance on the future options