Paragon Financial Group is funding during the COVID-19 crisis.

Invoice Factoring: An Alternative to Venture Capital Financing

Individuals looking to start a business may look to venture capital financing as a way to fund their great idea. Private investors are willing to give money to companies in high growth and potentially profitable industries.

Investors are looking for a return on their investment and sometimes a rather quick one. It can put much pressure on a new business. It can also be hard for some companies to receive these types of investments. An investor has to believe in the project. Also, the business often has to be a particular industry that offers a significant ROI, high growth, and fast profits. Not every company will meet these criteria.

For these companies, it will be necessary to find business acquisition financing. One great alternative is invoice factoring. We will discuss it more in-depth, including its’ advantages, below.

What are the advantages of Invoice Factoring?

Invoice Factoring is Fast:

It allows companies to get an advance on their invoices in a matter of days. The entire process, from finding a company, to hammering out a deal, takes far less time than attempting to secure venture capital financing. It is also much simpler.

Easier to Obtain:

It is much easier to obtain funds using invoice financing. The process is much shorter and involves far less convincing. A company does not have to prove how they will be able to pay back the borrowed funds (because it is not a loan). Because factoring involves being advanced money that has already been earned (and the factor does the collecting), there is nothing left for the company to do but wait until the job is finished. Companies also do not have the burden of going out and securing business to pay back venture capitalist lenders. They are using the business they have already secured and leveraging it for much-needed monies.

Access to Fast Cash:

As a business grows so does the amount of money that can secure through factoring. Cash advancements grow with sales volume. The more invoices they have outstanding, the more money they can receive.

What is Venture Capital Financing?

Mostly, new and startup companies use Venture Capital Financing. It is a way for them to receive money when companies might not be eligible for a bank loan.

Who can use Invoice Factoring?

Invoice factoring can also be used by new companies, though not those who have yet to secure any business. As long as they have to pay clients who owe them money, they should be able to receive an advance on their invoices.

What is the difference between Invoice Financing and Venture Capital Financing?

The difference between invoice factoring and venture capital financing is that companies will not have to pay the money back when they use the former option. It means less stress, worry, and no debt. Companies also have more control over their business because they don’t have anyone directly and monetarily invested in their company, feeling like they have the right to tell them what to do.

  • Venture capital financing can be a great option for companies that need much money to begin a company but have no customers.
  • However, for those companies that are newer and have already secured clients, a great choice is invoice factoring. It allows them to get a quick infusion of cash without taking on debt from investors.

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