Invoice Factoring vs. Working Capital Loans: Compare Business Funding
Invoice factoring vs. working capital loans — compare two popular solutions for B2B cash flow management.
Invoice Factoring: Invoice factoring converts outstanding B2B invoices into immediate working capital — the factor advances a percentage and collects from your customers. Working Capital Loan: A working capital loan covers day-to-day operational expenses — payroll, rent, supplies — giving businesses the cash flow cushion they need to operate smoothly.
Invoice Factoring vs. Working Capital Loan — side by side
| Invoice Factoring | Working Capital Loan | |
|---|---|---|
| Typical amount | $10,000 – $5,000,000 | $10,000 – $500,000 |
| Typical term | 30 – 90 days per invoice | 6 – 36 months |
| Rate | 1% – 5% per 30 days | 10% – 40% APR |
| Minimum time in business | 6 months | 6 months |
| Minimum credit score | No minimum (based on your customers) | 550+ |
Which is right for your business?
- Invoice Factoring tends to fit best when you need payroll or supplier payments.
- Working Capital Loan tends to fit best when you need payroll or rent.
Frequently asked questions
Which is less expensive — factoring or a working capital loan?
It depends on the specifics. Factoring at 2%/month = ~24% annualized. Working capital loans range from 15% to 80%+ APR. For short-term invoice advances (30 days), factoring can be competitive. For longer invoice cycles or when comparing to the cheapest working capital products, results vary — always model the full cost.
