Invoice finance, asset finance and small business loans — what’s the difference?

Summary: Invoice finance converts unpaid B2B invoices into immediate cash; asset finance spreads the cost of equipment, vehicles or plant using the asset as security; and small business loans provide term funding for working capital, growth or refinancing. Each product suits different needs, speeds and security profiles. UK Business Loans does not lend — we introduce you to lenders and brokers and can match businesses seeking finance (typically from £10,000 upwards) with the best options. Ready to compare? Get Quote Now — Free Eligibility Check.

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Quick comparison

Fast snapshot for skimmers:

• Invoice finance — unlock cash tied up in unpaid B2B invoices; fast and seasonal-friendly; security is the debtor ledger rather than your fixed assets.
• Asset finance — fund equipment, vehicles or machinery by spreading cost; asset itself is the security; good for preserving working capital.
• Small business loans — term or short‑term funding for general purposes (expansion, refi, premises); may be secured or unsecured and often involves underwriting of accounts and credit checks.

Mini table:

Product	Best for	Security	Speed
Invoice finance	Improving cashflow from unpaid invoices	Debtor ledger / facility agreement	Very fast (days)
Asset finance	Buying equipment, vehicles, machinery	Asset itself	Days to weeks
Small business loans	Growth, consolidation, general funding	Unsecured or secured (property/PBs)	Days to weeks

Get Quote Now — Free Eligibility Check (takes ~2 minutes; no obligation).

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What is invoice finance?

Definition and types

Invoice finance turns unpaid B2B invoices into cash. Two common forms are:

• Invoice factoring: the funder buys or advances against your invoices and often manages collections and debtor chasing; the customer is usually aware the invoice has been assigned.
• Invoice discounting: you retain responsibility for collections; the facility is confidential and customers typically don’t know a third party is advancing funds.

Who it suits

Typically suitable for limited companies operating B2B with outstanding invoices, seasonal businesses, or firms scaling quickly and needing working capital without taking on asset debt.

How it works (simplified)

1. You submit unpaid invoices to the funder.
2. The funder advances a percentage (commonly 70–90%) up front.
3. When your customer pays, the remaining balance is released less fees.

Costs and considerations

Fees can include an advance fee, discount rate/finance charge, service or administration fees and occasionally set‑up or renewal charges. Effective cost varies by sector, debtor quality and facility type. Factoring may affect customer relationships because collections may be handled by the funder; discounting keeps collection control with you.

Pros and cons

• Pros: immediate cashflow, scales with sales, quicker than many loans.
• Cons: ongoing cost, possible customer visibility (factoring), facility limits tied to debtor profile.

Example: a single £50,000 invoice with an 80% advance gives £40,000 up front; the remaining £10,000 minus fees is released when the invoice is paid.

Check if invoice finance suits you — Free Eligibility Check.

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What is asset finance?

Definition and common forms

Asset finance helps you acquire equipment, vehicles, plant or technology using the asset as security. Typical structures include:

• Hire Purchase (HP) — you hire the asset and own it after the final payment.
• Operating lease / finance lease — different ownership and accounting outcomes; leases often include residual values.
• Chattel mortgage — a loan secured on an asset where you take ownership at the outset.

Who it suits

Trades, transport firms, manufacturers, hospitality and retail businesses buying vehicles, plant, IT, catering or production equipment.

How it works

Application → lender values the asset → agreed deposit/term and payments → ownership or return options at the end. Lenders may finance new or used assets and can include refurbishment or installation costs.

Costs, tax & accounting

Costs include interest, arrangement fees and possibly a balloon or residual payment. Tax and accounting treatment differs by product (capital allowances, VAT on HP vs leases) — speak to your accountant for specifics.

Pros and cons

• Pros: preserves working capital, predictable payments, can enable growth without large upfront spend.
• Cons: asset is security (repossession risk if you default), potential VAT or residual complexities.

Example: buy a new van via hire purchase with a 10% deposit and monthly payments over 48 months — you spread cost while using the van to generate revenue.

Get matched to asset finance lenders — Get Quote Now.

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What are small business loans?

Definition and common types

Small business loans are term or short-term facilities for general business needs. Forms include unsecured loans, secured loans (against property or assets), bridging loans, merchant cash advances, and overdrafts.

Who they suit

Businesses needing working capital, funding growth, refinancing debt, making deposits, or financing premises fit-outs. Suitable where a lump sum or a planned repayment profile fits the business plan.

Process and eligibility

Applications typically involve submission of accounts, management information, a purpose statement and underwriting checks (credit history, trading performance). Some lenders require trading history and minimum turnover; others work through brokers to place more complex cases.

Costs & risks

Expect interest, arrangement fees and potential early repayment or exit charges. Lenders may request personal guarantees or security for SME loans — this can transfer risk to directors.

Pros and cons

• Pros: flexible use of funds, predictability, often lower cost than alternative short-term finance for good credit profiles.
• Cons: underwriting takes time, approvals are not guaranteed and may require security or personal guarantees.

Request tailored small business loan quotes — Free and no obligation.

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Direct comparison: key differences at a glance

Use this quick guide when deciding which product to explore first.

• Purpose: Invoice finance — immediate cash from invoices; Asset finance — acquire equipment while spreading cost; Loans — general funding for growth/refi.
• Speed: Invoice finance is often the fastest; asset finance and unsecured loans can also be quick; secured loans and complex deals may take longer.
• Security: Invoice finance secured on debtor ledger; asset finance secured on asset; loans may require property security or personal guarantees.
• Cost profile: Varies widely: invoice finance is ongoing as sales grow; asset finance has interest and possible residuals; loans may be cheaper for strong credit profiles.
• Balance sheet impact: Treatment depends on product and accounting rules — leases vs HP vs loans differ. Check with your accountant.
• Customer relationships: Factoring can be visible to debtors; discounting and loans typically are not.

Decision matrix — short recommendations:

• Choose invoice finance if immediate cash from invoices is your priority and you trade B2B.
• Choose asset finance if you need vehicles, machinery or equipment and want to preserve cash.
• Choose a small business loan if you need a lump sum for expansion, refi or general working capital and can meet underwriting conditions.

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How UK Business Loans helps

We are not a lender. We introduce businesses to lenders and brokers that can provide suitable finance solutions. Our usual case sizes start at around £10,000 and above.

How it works:

1. Complete a short enquiry (2 minutes).
2. We match you to the best-fit lenders and brokers based on industry, need and size.
3. Partners contact you with quotes and next steps so you can compare offers.

Our service is free to use and there’s no obligation to proceed. Submitting an enquiry does not affect your credit score — lenders may perform checks only if you progress to an application. Get Quote Now — Free Eligibility Check.

For more context on targeted options for growing firms, see our small business loans overview: small business loans.

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How to choose — decision checklist and questions to ask lenders

Before you enquire, answer these:

• What is the exact purpose and amount required?
• How quickly do you need funds?
• Do you want to retain ownership of assets?
• Can you or do you want to offer security?
• What are the total fees, APR and early repayment costs?
• Will a personal guarantee be required?
• Will factoring affect how your customers are contacted?
• Ask for an example repayment schedule in writing.

If you’re unsure which product is best, start a quick enquiry and we’ll match you with specialists who can explain the real costs and trade-offs: Get Started — Free Eligibility Check.

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Frequently asked questions

Will submitting an enquiry affect my credit score?

No. Completing our enquiry form does not trigger a lender credit check. Lenders may perform checks only if you proceed with an application.

Which option is quickest for cashflow?

Invoice finance is usually the fastest way to convert outstanding invoices into cash. Speed varies by provider and how quickly invoices are verified.

Can start-ups use invoice or asset finance?

Some providers will consider younger businesses, but many require trading history and reliable debtor profiles for invoice finance. Asset finance can sometimes be arranged where the asset itself has value.

Do lenders often require personal guarantees?

For SMEs, personal guarantees are common for unsecured or higher-risk facilities. Ask each lender for clarity and consider legal advice before signing.

Can I move from one product to another later?

Yes — businesses often move between products (e.g., invoice finance while scaling, then a loan when stabilised). Discuss exit/switch options with your provider or broker.

Are the lenders you introduce regulated?

We introduce a range of lenders and brokers. If regulation is important to you, ask your matched partner directly about their regulatory status.

Start your enquiry now — Free Eligibility Check.

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Closing summary & next steps

Invoice finance, asset finance and small business loans all help businesses access cash, but they differ by purpose, security, speed and cost. Choose based on whether you need immediate cash from invoices, funding to buy assets, or a lump-sum loan for growth. To compare quotes quickly and confidentially, complete our short enquiry and we’ll match you with suitable lenders and brokers. Get Quote Now — Free Eligibility Check.

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We are an introducer — not a lender. We introduce businesses to lenders and brokers who may contact you with offers. Submitting an enquiry is free and no obligation; it does not affect your credit score. Offers are subject to lender checks and eligibility.

1. What’s the difference between invoice finance, asset finance and small business loans?
Invoice finance converts unpaid B2B invoices into immediate cash, asset finance spreads the cost of equipment or vehicles using the asset as security, and small business loans provide term funding for general purposes such as growth, refinancing or working capital.

2. Which option is best for improving cashflow quickly?
Invoice finance is typically fastest for cashflow because it advances against outstanding B2B invoices, often within days.

3. Can start-ups or businesses with limited trading history get invoice or asset finance?
Some providers will consider start-ups—asset finance can be available based on the asset’s value and a limited number of lenders offer invoice or loan facilities to younger businesses with strong debtor profiles or specialist underwriting.

4. Will submitting an enquiry via UK Business Loans affect my credit score?
No — completing an enquiry on UK Business Loans does not trigger a lender credit check; lenders may only run checks if you progress to a formal application.

5. What loan amounts can I access through UK Business Loans?
UK Business Loans typically matches businesses seeking finance from around £10,000 up to multi‑million pound facilities depending on lender appetite and sector.

6. Do lenders usually require security or personal guarantees?
Many lenders ask for security or personal guarantees for unsecured or higher‑risk facilities, while asset finance is usually secured on the asset and invoice finance is secured on the debtor ledger or facility agreement.

7. How long does it take to get funds for invoice, asset or loan finance?
Invoice finance can be arranged in days, asset finance and unsecured loans often take days to weeks, while secured or complex deals can take longer.

8. How do costs differ between invoice finance, asset finance and small business loans?
Costs vary by product—invoice finance has ongoing fees and a discount/advance rate that scales with sales, asset finance carries interest and possible residuals, and term loans may offer lower APRs for strong credit profiles, so always request an example repayment schedule.

9. Will using factoring affect how my customers are contacted?
Yes — invoice factoring often makes the funder visible because they may manage collections, whereas invoice discounting is usually confidential and keeps collection control with your business.

10. How do I start the process and what information do I need to get matched?
Begin with the free two‑minute enquiry on UK Business Loans supplying basic business details, funding purpose, amount and trading history so we can match you to appropriate lenders or brokers.