When a small business needs funding, the two most common options people think of are bank loans and invoice financing. They are very different products, and choosing the right one depends heavily on what you need the money for.
Bank loans provide a lump sum of money upfront, which you repay over an agreed term — typically one to five years — with interest. The loan amount is fixed, repayments are scheduled, and the cost is the interest rate.
Invoice financing advances money against your unpaid invoices. You access funds you have already earned but have not yet received. The cost is a fee on each invoice advanced, and repayment happens automatically when your client pays.
Bank loans typically take weeks to arrange. Application, credit assessment, documentation, and approval processes are lengthy. For many small businesses, particularly those without significant assets to offer as security, approval is not guaranteed.
Invoice financing is significantly faster. FundTap can advance funds within hours of connecting your accounting software. There is no lengthy application, no property security required, and no credit assessment based on your personal credit history.
Bank loan interest rates vary, but small business rates in Australia and New Zealand typically range from 7% to 15% per annum. You pay interest on the full loan balance for the full term, whether you use the money actively or not.
Invoice financing is priced per transaction — a percentage of the invoice value, typically 1.5% to 3% per invoice depending on the provider and invoice size. You only pay when you use it. If you fund an invoice for one month, you pay for one month.
For short-term working capital needs, invoice financing is often cheaper when you calculate the actual cost against the period of use.
Bank loans for small businesses frequently require security — property, equipment, or personal guarantees. This creates a barrier for many business owners who do not want to put personal assets at risk.
Invoice financing uses the invoices themselves as the asset. Your debtor's creditworthiness is more important than your own credit history or personal assets.
Bank loans are inflexible by design. You borrow a fixed amount, repay on a fixed schedule, and cannot adjust based on your business's changing needs without refinancing.
Invoice financing scales naturally with your business. As your invoicing grows, your access to funds grows with it. You use it when you need it and do not pay when you do not.
Bank loans make sense for long-term capital needs: buying equipment, fitout of premises, significant technology investments, or business acquisitions. These are investments that will deliver returns over years.
Invoice financing makes sense for working capital: bridging the gap between invoicing and payment, funding the upfront costs of growth, or managing seasonal cash flow. These are short-term timing needs, not long-term capital investments.
Using a bank loan to solve a working capital timing problem is expensive and inflexible. Using invoice financing to fund a long-term asset is inefficient. Match the tool to the job.
For businesses that need working capital — the most common short-term funding need for small businesses — FundTap is designed specifically for this purpose. Fast, flexible, no security, and priced only for what you use.