Updated on 10th October 2023

ScotPac has been providing small to medium sized businesses with invoice finance and business loan solutions for 30 years. With tailored packages to suit every business, our clients enjoy the customised solutions we have to offer.

But what exactly is the difference between invoice finance vs business loans?

In this article, we’ll outline everything you need to know to get started with both of these financial instruments.

A Guide to Invoice Finance

Invoice finance is a solution for businesses requiring access to working capital quickly to help fund growth or cover operating expenses.

With this form of finance, a company uses the invoice/invoices it has issued to customers that remain unpaid as collateral for the loan itself.

How does it work?

With invoice finance, even though the outstanding invoices are used as security, the business who issued the invoices continues to own it and is responsible for the debt collection. The finance lender simply provides a cash advance, i.e., a loan, against the value of the accounts receivable. There is, of course, a processing and administration fee as well as a percentage of interest charged on each week.

Invoice finance is widely used across businesses needing reliable, fast access to working capital. Unlike traditional business loans from conventional banks, there is less red tape and paperwork involved with invoice finance. All a business really needs is a customer base who reliably settle their invoices in a timely manner.

Note: Invoice finance is available for businesses with commercial customers only, rather than direct business-to-consumer corporations.

The Process

There are three main stages with a business accessing invoice finance.

  • Invoices are issued.
  • Finance is received.
  • Invoices are settled.

Let’s break this down a little more.

1. Invoices are issued

As normal, your business will provide a service or product to a customer and raise, then issue, an invoice for the amount owed. 

This invoice is also provided to the financing company as per the terms of their invoice finance agreement.

2. Finance is received

Your business will then receive the capital owed to it at the value set out in the agreement. Normally this is a defined percentage of up to 95% of the total value of the invoices submitted.

3. Invoices are settled

Once your end customers have settled their invoices and paid their accounts, your finance company will release the rest of the value of the invoices less any agreed to fees etc.

Is invoice finance right for you?

The answer is maybe. Every business is different and has different requirements. There are many benefits to using invoice finance that you may want to consider. These include:

Fast access

Invoice finance provides quickly accessible working capital with little delay compared to traditional bank loans.

Cash in advance

If your business has cash flow issues, this financial solution can help alleviate the problem.


Whether you need to face a sudden operational challenge or access funds for an emergency, invoice finance is flexible in how and when you access it.


With less red tape, less criteria for eligibility and less paperwork, invoice finance is easier for many new and growing businesses to qualify for.

When Invoice Finance Isn’t Right For You

However, there can be alternate financial solutions that would be better suited to your business’s needs. Invoice finance does have a few drawbacks you should take into consideration as well.

  • The interest and fees associated with it can be expensive.
  • The cost of the loan is determined by the length of time that your invoices take to be settled which is an external factor and hard to control.
  • You will need to be operating a business-to-business company and have a customer base with a reputation for timely account settling. Some providers also require high credit ratings.

A Guide to Business Loans

Business loans are similar to other types of loans. They are provided by traditional banks or other financial/credit lenders.

A business may apply for a loan from a finance provider for use as working capital, to establish a new business, purchase assets or property, or take advantage of growth opportunities. 

Using Business Loans

Business loans offer flexibility in the way that they can be used. As a business, if you need a cash injection to help fund expenditure or grow your company a loan can help.

The application process will likely require you to outline how you intend on using the funds provided and the more detail and consideration you give to this part of the process the better your application will be. 

Business loans cannot be used for anything and everything. For one, it cannot be used for personal purchases. Buying a new car, purchasing a home or funding transport that is not directly related to the business and its operations need to be funded through a personal loan rather than a business loan.

Some common examples of uses for business loans include:

1. Covering day to day operating expenses
2. Debt refinancing or debt consolidation
3. Funding the start up of a company
4. Buying real estate e.g., offices, factories or warehouses
5. Buying equipment, machinery, inventory or other assets
6. Buying another business i.e., acquisition
7. Expansion and growth
8. Marketing and advertising

How to Get a Business Loan

Business loans are generally provided in one of two ways:

1. As a lump-sum of cash; or
2. As a line of credit with an approved amount limit.

Both forms of business loans will include relevant fees and interest charges.

When the loan is approved and issued, your repayments – at the frequency outlined in your agreement – will continue until the loan is paid off in full. While some financial lenders offer unsecured loans, most business loans will require you to put up some form of security to guarantee the funds.

If you’re looking to apply for a business loan, have a chat to the ScotPac team about the options available to you and your business. The more information you can have ahead of time, the easier the entire process will be.

Here’s a quick checklist of what you’ll need to get started.

  • Identification
  • Proof of income statements
  • Your directors, partners or guarantors’ financial statements
  • Bank statements
  • Detailed information regarding how you’re going to be using the loan and what it is going to be used for

Every lender’s application process and requirements are different. So make sure you’re as prepared as possible and familiar with the criteria of the particular lender you are engaging with.

If you’re a new business that doesn’t have the history of financial statements required, you may need to provide additional information to your chosen lender. Familiarise yourself with the terms and conditions of the agreement, which can vary depending on the nature of the loan.

Is a Business Loan right for you?

As with invoice finance, business loans may be the right solution for some companies but not others.

There can be a lot to factor in when considering a business loan. To help simplify the process, here are the core components to think about:

1. Principal amount

How much money are you looking to borrow in total?

2. Interest rates

What rate of interest will be charged on the principal amount? Are you better suited with a fixed or variable interest rate?

3. Collateral

Do you have an asset, such as a property, that you can use as collateral to secure the loan?

4. Term Length

How long is the term of the proposed loan and does that work with your business’s needs and ability to repay the funds?

5. Business Growth

Have you projected your future business growth and cash flow to ensure you can meet the needs of the lender?

6. Insurance

Do you have the right insurance coverage, such as indemnity insurance, which could be a mandatory requirement for some lenders?

Receive tailored invoice finance vs business loans advice today!

Both invoice finance and business loans offer businesses advantages and disadvantages in accessing working capital. Every business is different and has different needs. It can be hard to know which financial instrument is right for you and your situation.

Fortunately, with the ScotPac team, you don’t have to make the decision alone. Our unparalleled breadth and depth of capability and wide offering of financial solutions means that we can ensure every client of ours receives the best option for their needs. To find out more or arrange a one-on-one consultation regarding invoice finance vs business loans, contact us today.