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The Beginner’s Guide to Invoice Discounting

If your business uses invoices to collect payments from customers, you may want to use invoice discounting as a financing solution. It’s not the same as a traditional loan. While invoice discounting does, in fact, involve borrowing money from a lender, it leverages unpaid invoices. You can tap into your business’s unpaid invoices to raise capital.

The Beginner’s Guide to Invoice Discounting

Overview of Invoice Discounting

Invoice discounting is a form of debt financing that’s backed by unpaid invoices. You can use your business’s unpaid invoices as collateral. The lender will see that your business is owed money from customers, so it will loan you money.

How Invoice Discounting Works

As a form of debt financing, invoice discounting is offered by lenders. Both banks and alternative lenders offer invoice discounting. As long as your business has unpaid invoices, you can use its accounts receivables to secure an invoice discounting loan.

The amount of the invoice discounting loan will vary depending on the lender’s terms and the value of your business’s unpaid invoices. Some lenders offer 70% of the value of unpaid invoices, whereas others offer up to 90% of the value of unpaid invoices. If the value of your business’s unpaid invoices is $100,000, for instance, the lender may offer you $70,000 to $100,000.

The Benefits of Invoice Discounting

With invoice discounting, you don’t have to worry about stringent credit requirements. Invoice discounting loans are easier to acquire than other types of business loans because they are backed by unpaid invoices. You can obtain them with bad credit or no credit.

Invoice discounting can improve your business’s cash flow. You can use it to obtain cash — all without selling equity. Equity financing can also improve your business’s cash flow, but it comes at the cost of equity. You’ll have to sell some or all of your business to an investor. To retain ownership of your business, you should choose a form of debt financing. Debt financing, such as invoice discounting, will improve your business’s cash flow while allowing you to retain full ownership of your business.

You don’t have to worry about using other assets as collateral. Many entrepreneurs and business owners prefer secured loans over unsecured loans. The problem with secured loans, though, is that they require collateral.

Invoice discounting loans require collateral as well, but you can use your business’s unpaid invoices as collateral. You won’t need to use your business’s real property, equipment, investments or other assets as collateral.

This article was brought to you by Intrepid Private Capital Group – A Global Financial Services Company. For more information on startup and business funding, or to complete a funding application, please visit our website.

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Intrepid Private Capital Group • June 2, 2022


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