If your business is thriving but you don’t have money in the bank, it could be holding you back  – or even spell disaster.

Here we break down two financing options for easing cash-flow woes – invoice financing (AKA factoring) vs business loans – and the pros and cons of each.

What’s the difference and what could suit you?

Getting finance is often a necessary solution to cash flow woes, but it isn’t always easy to get. Here we have a rundown on the difference between business loans and invoice financing, and which one might be the simpler, smarter choice.

Same cash, different financing options

Not to be negative, but the reason why more than 82% of businesses close is cash flow. You need money in the bank to pay your team, buy stock and cover the rent, but what if customers pay late or you’re having to spend before your invoices are due? Your business could be growing and loved by customers, but if the coffers are empty, the lights go off.

The simplest way to smooth cash-flow humps is with finance – but not all lending is created equal. Here we look at the difference between business loans vs invoice financing to help you choose the right option.

Business loans – the pros and cons

When you’re feeling the cash-flow pinch, getting a business loan can seem like the obvious choice. You apply for and get a chunk of cash that sits in your bank account to use when you need it.

You’ll have the loan for a set period and repay the principal and interest over that time. People often take out a loan when they’re planning for a finite growth period – maybe they need to buy more stock or a new piece of equipment, launch a special project or hire more staff. They’ll be expecting a big jump in revenue which will help cover the loan costs. If your cash-flow squeeze is being caused by slow-to-pay customers or a more gradual growth, a business loan may not suit you as well.


  • Overall costs can be slightly lower than invoice financing, especially for larger loans with solid collateral to secure the loan against, such as equipment or buildings.


  • As with all loans, the amount you can borrow is capped by what the bank thinks you can repay based on your current business situation, not what you could be bringing in.
  • Because approvals are based on your operational history, new businesses can find it almost impossible to get business loans.
  • Banks need time to check through your business information, so approvals can take weeks or months.
  • More debt on your balance sheet makes your business look less valuable, and may prevent you from getting other loans.
  • If you need more money before the end of the loan term it can be very hard to get more funding.

Invoice financing – the pros and cons

Also known as factoring, invoice financing means you can get your invoices paid right away. Instead of waiting for your client to pay an invoice, a funding company like Butn will pay it upfront, minus a small fee.  Then, your customer will pay the funding company at term. There are no repayments, no interest rates and no debt on your balance sheet. Because of that, businesses often use invoice financing to help with day-to-day expenses. Some businesses find it suits them to finance their invoices as standard.


  • The amount you can finance depends on the invoices you have coming in and the credit strength of your customers.
  • You get cash in your bank, but no debt on your balance sheet, no interest to cover and no repayments.
  • Even if you’ve only just opened your doors, you’ll be able to finance your invoices – it’s based on the future of your business, not the past.
  • It’s fast. Invoice financing lenders generally take a lower-touch approach to credit assessments, and they often don’t need to take an exhaustive look into your financials. That means you can expect to see money in your bank within days. With Butn X, our systems substantially reduce time – we’re talking minutes, not days. It means you get your money today.


  • You’ll pay a small fee for the service.
  • You need to have money owing to you to get funding, so will only suit your business if you’re already trading and making sales.
  • You’re relying on your client to pay the invoice – in the very rare case that they don’t, you may need to cover the amount

Plan for the cash-flow crunch before it hits

If you have ambitions to grow, cash-flow issues are almost inevitable – after all, you need to spend money to make money. That’s why it makes sense to have a plan for dealing with any cash-flow crunches before they happen.

Setting up Butn is simple. You can do it now and, unlike a business loan, you won’t have to worry about interest or repayments. Your invoice financing solution will be ready to go when you need it.
Click here to get started.

*Butn is enabled within MYOB, via the invoicing screen. Learn more here.