Invoice Factoring vs Business Line of Credit: Which Should You Choose?
Compare two common working capital options for small business. Real costs, use cases, and when each makes sense.
When cash flow gets tight, two common funding sources come up: invoice factoring and business line of credit. They solve similar problems differently. Here's how to choose.
The short version
- Factoring: sell your outstanding invoices for cash today. Expensive but fast.
- Line of credit: revolving pool of borrowed money. Cheaper but requires credit.
Factoring: how it works
1. You issue a $10,000 invoice to a customer with Net-30 terms
2. You sell the invoice to a factor (e.g., Fundbox)
3. Factor advances you 85% today ($8,500)
4. Factor collects from your customer
5. After customer pays, factor releases the reserve minus fees
Typical cost: 2-3% per 30 days the invoice is outstanding. On a 45-day collection, 2.5% fee = ~20% annualized APR.
Line of credit: how it works
1. Lender approves a credit line (e.g., $100k)
2. You draw what you need, when you need it
3. Pay interest only on drawn amount
4. Repay, redraw — revolving
Typical cost: 8-15% APR, plus possible annual fees ($150-500).
Side-by-side
| | Factoring | LOC |
|---|---|---|
| Cost | ~20% APR equivalent | 8-15% APR |
| Speed | Same day | Up to 2 weeks approval |
| Credit check | Based on customer's credit | Based on your business credit |
| Commitment | Per-invoice | Revolving |
| Visible to customer? | Yes (factor contacts them) | No |
| Good for | Slow-paying B2B customers | Seasonal fluctuations |
When factoring wins
- Your customers are creditworthy (Fortune 500, government)
- You can't wait 30-60 days
- Your own credit is weak
- You want non-recourse (factor takes the risk)
When LOC wins
- You have decent business credit
- You need flexibility (occasional draws)
- You can plan 1-2 weeks ahead
- You want the lowest cost
The hybrid approach
Many growing businesses use both:
- LOC for predictable seasonal needs
- Factoring for one-off large invoices to slow payers
How to calculate your real cost
Use TinSuite's built-in Financial Calculators (Financing → Calculators tab) to model:
- Factoring: enter invoice, advance rate, fee, collection days → see effective APR
- LOC: enter limit, drawn amount, APR, term → see total interest
Next steps
TinSuite matches you with pre-qualified lenders in both categories based on your actual data. No credit impact until you apply. See your options →