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• 22 Sep

  Can You Have Invoice Finance If You Already Have A Business Loan

  Can you have invoice finance if your company already has a business loan? In most cases, the answer is yes. Having an existing business loan does not automatically prevent a company from using invoice finance as well.

  GET INVOICE FINANCE

  The important point is that the two types of finance can serve different purposes. A business loan might have been used to purchase equipment, fund an expansion or cover a one-off cost, while invoice finance can provide ongoing working capital against unpaid customer invoices.

  However, whether the two facilities can operate alongside each other depends on the business's circumstances, the terms of the existing borrowing, and the requirements of the finance providers involved.

  Can You Have Invoice Finance And A Business Loan At The Same Time?

  Potentially, yes. A business can use more than one type of finance.

  For example, a company could have an existing business loan that is being repaid monthly, while also using invoice finance to release cash from its outstanding sales invoices.

  This does not necessarily mean that the business is funding the same requirement twice. The facilities can perform different jobs.

  A term loan normally provides a fixed amount of money that is gradually repaid over an agreed period. Invoice finance works differently. Funding is released against eligible outstanding invoices and, as customers pay and new invoices are raised, the amount available can revolve with the sales ledger.

  Why Might A Business Need Both?

  There are many reasons a company that already has a loan might later need additional working capital.

  For example, the original loan may have been taken out to:

  • purchase machinery or equipment;
  • fit out new premises;
  • fund an acquisition;
  • launch a new product or service;
  • cover another one-off investment.

  The business could then face a separate cash flow requirement because its customers take a long time to pay their invoices.

  In that situation, invoice finance may address a different requirement. Rather than providing another fixed lump sum, it can release a proportion of the money customers already owe the business.

  Matching The Finance To The Requirement

  One way to view business funding is to consider whether the type of finance matches the reason the money is needed.

  A loan can suit a defined expenditure that can be repaid over an appropriate period. Invoice finance can be particularly relevant when working capital needs are tied up in unpaid business-to-business invoices.

  This distinction can become increasingly important as a company grows. Higher sales can mean more money outstanding from customers, so the working capital requirement can increase alongside turnover.

  Invoice finance is designed to respond to this type of situation because the potential funding available is linked to the eligible sales ledger.

  Example Of Using A Loan And Invoice Finance Together

  Consider a company that originally took a business loan to purchase equipment. The company repays the loan over several years, and the equipment has enabled it to increase sales.

  As turnover grows, the company might find that £80,000 is regularly outstanding from customers awaiting payment.

  The original loan has already served its purpose by helping to finance the equipment. Taking another loan purely because more cash is becoming tied up in customer invoices is not the only possible option.

  An invoice finance facility could potentially release an agreed percentage of eligible outstanding invoices. As customers settle those invoices, the associated funding is cleared, and new eligible invoices can generate further availability.

  This illustrates how a loan and invoice finance can potentially operate alongside each other while addressing different funding requirements.

  Could An Existing Loan Prevent Invoice Finance?

  In some cases, existing borrowing can affect your ability to arrange a new invoice finance facility.

  One issue to consider is the security already granted to an existing lender.

  For example, a lender may hold a debenture or other security over some or all of the company's assets, and that could include its book debts. An invoice finance provider will need to understand the existing security position because its facility relates to the company's receivables.

  This does not necessarily mean that invoice finance cannot be arranged. Depending upon the circumstances, the finance providers may be able to agree appropriate security arrangements or priorities.

  The exact position depends on the existing agreements and the requirements of the respective finance providers. Legal advice may be appropriate where security arrangements need to be changed or agreed.

  What If The Business Loan Has A Personal Guarantee?

  A personal guarantee on an existing business loan does not, by itself, prevent a company from arranging invoice finance.

  However, the incoming invoice finance provider will consider the business's overall financial position and existing commitments when assessing a proposed facility.

  Invoice finance providers have their own acceptance criteria, so the terms available will depend upon the individual circumstances.

  Can Invoice Finance Be Used To Repay A Business Loan?

  In some circumstances a business may consider restructuring its funding rather than simply adding another facility.

  If a company has a significant amount of cash tied up in eligible unpaid invoices, invoice finance may release working capital that changes its overall funding position.

  Whether it would be appropriate or possible to use funds released to repay or reduce other borrowing will depend upon the terms of both facilities and the circumstances of the company.

  This is different from simply comparing which product is cheaper. Loans and invoice finance have different structures, repayment mechanisms, and purposes, so you need to consider the overall funding requirement.

  What If You Already Have Several Business Loans?

  If a business repeatedly takes additional loans because it lacks working capital, it may be worth examining the underlying reason for the recurring cash requirement.

  Where the problem is caused by customers taking time to pay invoices, a revolving form of funding may sometimes be more appropriate than continually adding fixed-term borrowing.

  We discuss this issue in more detail in our article about loan stacking and alternatives to additional business loans.

  What If You Already Have Invoice Finance And Need A Loan?

  The situation can also arise in reverse. A company may already use factoring or invoice discounting but later need additional funding for a purpose the invoice finance facility can't fully cover.

  In some cases, additional lending is arranged alongside an existing invoice finance facility. We have covered this separately in our article about topping up invoice finance with a business loan.

  Invoice Finance With An Existing Business Loan

  A business loan does not automatically mean invoice finance is unavailable.

  Key questions include why additional finance is required, how much is needed, which invoices and customers the business has, what existing borrowing and security arrangements are in place, and whether the proposed facilities can operate together.

  FundInvoice can review your business circumstances and search our panel of finance providers for suitable options. This can include invoice finance, factoring, invoice discounting and business loans.

  If you already have a business loan and want to find out whether invoice finance could provide additional working capital, call FundInvoice on 03330 113622 or request a quotation through our website.

  Frequently Asked Questions

  Can I get invoice finance if I already have a business loan?

  Potentially, yes. An existing business loan does not automatically prevent a company from arranging invoice finance. The existing borrowing, security arrangements, sales ledger and requirements of the finance providers will need to be considered.

  Can a company have a loan and invoice finance at the same time?

  Yes, it can be possible to have both. They may be used for different purposes, for example, a business loan for a one-off investment and invoice finance to provide ongoing working capital against unpaid invoices.

  Does a debenture stop a company getting invoice finance?

  Not necessarily. However, the proposed invoice finance provider will need to consider an existing debenture or other security. Appropriate arrangements between finance providers may be required depending upon the circumstances.

  Is invoice finance another business loan?

  No. The products are structured differently. A business loan normally provides a fixed amount that is repaid over an agreed term. Invoice finance releases funding against eligible unpaid customer invoices, and the available funding can revolve as invoices are raised and paid.

  Can invoice finance replace an existing business loan?

  Potentially in some circumstances, but the two products meet different requirements. Whether refinancing or restructuring existing borrowing is appropriate depends on why the funding is needed, the amount available from the sales ledger, and the terms of the existing facilities.

  By Glenn Blackman