Vendor credit is an excellent short-term business loan option because it gives you time to convert those costs into sales to your own clients or customers.
While not a traditional creditor-borrower relationship, some vendors may be willing to report your on-time payments to the commercial credit bureaus, which can help you establish and build your business credit history.
Invoice financing
Invoice financing is a specialized short-term small business loan that’s considered a cash flow loan instead of a term loan.
You can apply for invoice financing if you’ve sent a client or customer an invoice but haven’t received payment. The lender will require the invoice to be used as collateral to secure the loan. You’ll then repay the debt plus interest and fees when you receive payment from your client or customer.
The amount of interest you’ll pay with invoice financing depends on the lender, the invoice and your creditworthiness. But you can generally expect to pay an interest rate between 13% and 60%.
Invoice factoring is a similar term you may come across when you research invoice financing – however, the two are not the same. While invoice financing involves borrowing money click to read more with an invoice as collateral, invoice factoring doesn’t involve a credit relationship at all.
With invoice factoring, you sell the invoice to a third-party company in exchange for upfront payment – typically 70% to 90% of the invoice amount . The new company now owns the rights to the payment and will work with your client or customer to get payment.
Invoice factoring doesn’t involve any interest or fees, but it may end up costing you more with the discount the seller takes.