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Debtor Finance

The difference between debtor finance and bank loans

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Small businesses constantly need a steady cash flow to carry them through the tough times.

Having a reliable pool of cash to draw from at all times is a distant dream for most, which is why many businesses rely on external funding sources to help them out.

For small businesses, taking out bank loans isn't always a viable option. That is why debtor finance is increasingly becoming a more realistic - and effective - solution for small businesses to streamline their cash flow.

So how exactly does debtor finance differ from a traditional bank loan?

Firstly, your business isn't required to provide any assets as security, as it would with a bank loan. This makes invoice finance a much more appealing option for small business that may not have anything to offer as security.

In addition, your business's credit history is not so much of an issue when you're applying for debtor finance. While banks will carefully assess your ability to repay a loan, the focus with debtor finance companies is on the customers' invoices themselves.

Another great benefit of debtor finance is its impact on your balance sheet - or, more accurately, its lack thereof.

A traditional bank loan appears as a liability on your records as they are a form of debt. However, debtor finance deals only with assets - it is merely switching assets receivables into cash your business can use instantly, so there's no need to worry about working off any debt.

Lastly, applying for funding through debtor finance is a much faster process, from approvals right through to the cash landing in your account.

If you're a small business owner in need of quick cash to help you squeeze through the end of the month or quarter, debtor finance is therefore the way to go.