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Invoice finance vs business loan

£100,000 of working capital. What does it really cost to keep it available?

A term loan and an invoice finance facility (factoring or invoice discounting) fund the same need in very different ways. Move the sliders to compare what each one costs to keep the same working capital available, and how much funding each one actually delivers over time.

Set the numbers

Start from real 2026 quotes, then change anything you like.

Working capital
Invoice finance facility
Loan A: reducing-balance loan
Loan B: "flat rate" loan
A term loan advances this once. You then repay it over the agreed term.
Cumulative invoice value funded over five years. Invoice finance makes new advances as paid invoices are replaced by new ones.

Equivalent annual cost of keeping available

All three normalised to the same basis: what it costs, including fees, to have that amount of working capital continuously in use for a year. Not the cash interest bill on a loan whose balance is being repaid; that is in the table below.

Invoice finance
Loan A
Loan B
Invoice finance, per year
Ledger needed at this advance rate
Times the ledger turns over
Invoices funded
Admin fees
Discount charge
Over five years: cumulative invoice value funded
Over five years: cumulative cash advanced at this advance rate
Over five years: total cost

Excludes any additional facility charges some lenders apply, such as trust account, renewal or audit fees. These vary by lender and are shown in your matched lenders' indicative terms.

Loans: normalised view and the quoted loan itself
Loan A interest
Loan A arrangement fee, spread over the term
Loan A annualised cost rate incl. allocated arrangement fee
Loan B interest charged each year
Loan B equivalent APR from repayment schedule (excl. arrangement fee)
Loan B arrangement fee, spread over the term
Keeping this amount in use for five years: Loan A
Keeping this amount in use for five years: Loan B
Interest on the quoted Loan A over its term (balance repaid to zero)
Average balance you actually hold on Loan A
Interest on the quoted Loan B over its term (balance repaid to zero)
Average balance you actually hold on Loan B

How this is worked out

Invoice finance. The admin fee is calculated as a percentage of invoice value passing through the facility. The discount charge (base rate plus the lender's margin) is an annual rate on the money you've drawn. To keep a fixed amount of funds in use, the facility has to keep funding new invoices as old ones are paid, so shorter debtor days increase the number of invoice cycles through the facility, which increases invoice throughput and therefore the total admin fee charged over the year. That's why the debtor-days slider moves the invoice finance cost. The figures exclude additional facility charges some lenders apply (for example trust account, renewal or audit fees), which vary by lender.

Two ways of looking at a loan. The bars compare all three options on one basis: what it costs to keep the full amount of working capital in use for a year. The breakdown table also shows the interest you would pay on the quoted loan over its own term, where the balance is repaid to zero, together with the average balance you actually hold over that term. Both are true; they answer different questions.

Loan A. Annual interest at the quoted APR on the funds in use, plus the arrangement fee spread evenly across the term. A term loan is repaid as you go, so the balance you actually have shrinks every month; the figure here is the cost of keeping the full amount working for a year.

Loan B. A "flat rate" is charged on the original amount every month even though you're repaying capital, so the true APR is much higher than twelve times the monthly rate. The APR shown is worked out from the actual repayment schedule, and any arrangement fee is spread evenly across the term.

Default invoice finance costs (1.08% admin fee, 6.65% discount rate) are the mean of lender offers recorded for £100,000 facilities in Factor Now's put-forward tracker. The default of 40 debtor days matches the example aged debtor ledger used on this site. Default loan costs are live quotes sourced for a UK SME in September 2026. Illustration only; your rate depends on your customers, your sector and your trading history.

See what invoice finance would do for your cashflow

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