Funding comparison
Short answer
Choose a working capital for smoothing payroll, inventory, or vendor timing; choose an invoice factoring for b2B businesses waiting 30–90 days for customer payments. Published ranges: Working capital $10K–$500K, 24–72 hours, credit 520+; invoice factoring $10K–$5M, 24–48 hours, credit Revenue-based. Compare both on total payback and payment size, not the headline rate.
Both solve the same problem — the business needs cash before its customers pay — and both fund within days. The difference is where the money comes from. A working capital loan borrows against the business's own cash flow and repays on a schedule; factoring sells the invoices themselves and ends when the customer pays. For a business that invoices other businesses, that difference decides which product costs less and which scales.
The short version
Working-capital financing provides runway for near-term operating costs such as inventory, payroll, and supplier payments.
The short version
Invoice factoring converts eligible B2B receivables into working cash, with underwriting focused heavily on invoice quality and customer credit.
How they differ
A working capital loan deposits $5,000 to $250,000 within one to two business days and repays daily, weekly or monthly over a few months to two years at published APRs of roughly 15% to 60%, with short-term products sometimes quoting a factor rate. It wants six months in business and credit around 550, it is underwritten on deposits and it can be spent on anything.
Invoice factoring advances 70% to 90% of an eligible B2B invoice within one to three business days of setup, collects from the customer and pays the balance less a fee of roughly 1% to 5% of the invoice per 30 days. There is often no minimum time in business, the owner's credit is secondary to the customer's and the facility grows automatically with invoice volume.
The structural difference is what the cost attaches to. The loan's cost runs for its whole term regardless of when customers pay; the factoring fee runs only while a specific invoice is outstanding and stops when it is paid. For a business with creditworthy B2B customers, factoring is usually cheaper and scales without reapplying; for a business paid by consumers or cards, it does not apply at all.
Side by side
Market ranges compiled from published lender and marketplace guidelines. They are not offers or guarantees; final terms depend on underwriting and the specific funding partner.
| Consideration | Working capital loan | Invoice factoring |
|---|---|---|
| Typical amount | $5,000 – $250,000 | $10,000 – $5,000,000 (70% – 90% advance on eligible invoices) |
| Term | 3 – 24 months | Per invoice; 30 – 90 day invoice cycles |
| Time to fund | 1 – 2 business days | 1 – 3 business days after setup |
| Cost (market range) | APR roughly 15% – 60%; short-term products may quote a factor rate instead | Factoring fee 1% – 5% of the invoice per 30 days |
| Payment rhythm | Daily, weekly or monthly | Settled when the customer pays the invoice |
| Time in business | 6 months in business | No minimum in many cases; the customers' credit matters most |
| Revenue guideline | $8,000+ monthly revenue | Invoices to creditworthy business or government customers |
| Credit guideline | 550+ typical | Owner credit is secondary to customer credit |
| Typical documents | 3–6 months of bank statements; Government ID; Voided check | Accounts-receivable aging report; Sample invoices and contracts; Customer list; Government ID and entity documents |
| Best for | Short gaps: inventory before a busy season, payroll, a tax bill, a large order | B2B businesses waiting 30 – 90 days on invoices: trucking, staffing, construction subcontractors, wholesale |
| Watch-outs | Short terms mean high payments relative to the amount; Renewal offers can create a cycle of borrowing; Compare total payback, not the headline rate | Customers may be notified (non-notification factoring costs more); Recourse factoring puts unpaid invoices back on you; Fees compound if customers pay slowly |
Read the table on eligibility first: factoring requires B2B invoices with creditworthy customers, while the working capital loan requires only steady deposits. On cost, a 45-day invoice at 1% to 5% per 30 days usually beats a loan at 15% to 60% APR over months. On speed the loan is a day faster at the outset; on amount, factoring scales with sales while the loan is sized to a share of monthly deposits. Both usually carry a personal guarantee and a UCC lien.
Worked example
Each table estimates $40,000 at the lower end, midpoint and upper end of the product's published market range. The payment estimator below lets you change the amount or product.
| Scenario | Estimated payment | Total payback | Cost of capital | Basis |
|---|---|---|---|---|
| Lower end of range | $4,727 / month | $42,541 | $2,541 | 15.0% APR |
| Midpoint | $5,167 / month | $46,506 | $6,506 | 37.5% APR |
| Upper end of range | $5,628 / month | $50,648 | $10,648 | 60.0% APR |
| Scenario | Estimated payment | Total payback | Cost of capital | Basis |
|---|---|---|---|---|
| Lower end of range | $600 / invoice | $40,600 | $600 | 1.0% per 30 days |
| Midpoint | $1,800 / invoice | $41,800 | $1,800 | 3.0% per 30 days |
| Upper end of range | $3,000 / invoice | $43,000 | $3,000 | 5.0% per 30 days |
Borrow $40,000 as a nine-month working capital loan at the midpoint of the published range and the weekly payment is close to $1,180 with total payback near $46,000; the payments start immediately and continue whether or not the customers who caused the gap have paid.
Factor a $40,000 invoice that your customer pays in 45 days at the midpoint fee and the cost is roughly $1,800, with 80% advanced up front and the balance released when the customer pays; at the low end the cost falls near $600. The factoring fee is a fraction of the loan's cost for the same principal because it attaches to one invoice for one collection period rather than to the business for nine months.
At the midpoints: working capital loan costs about $5,167 per month with $46,506 in total payback, and invoice factoring costs about $1,800 per invoice with $41,800 in total payback. Every figure is an estimate from published ranges, not a quote.
Payment estimator
Illustrative invoice factoring figures for $40,000 using published market ranges. Switch the product to working capital loan to compare. Your offer depends on underwriting.
| Scenario | Estimated payment | Total payback | Basis |
|---|---|---|---|
| Lower end of range | $600 / invoice | $40,600 | 1.0% per 30 days |
| Midpoint | $1,800 / invoice | $41,800 | 3.0% per 30 days |
| Upper end of range | $3,000 / invoice | $43,000 | 5.0% per 30 days |
Decision guide
If you invoice other businesses, factor the invoices and use a working capital loan only for the needs that receivables cannot cover. If your revenue arrives by card or at the point of sale, factoring is not available and a working capital loan — or better, a line of credit once the file supports it — is the tool. Never borrow at loan rates to wait for invoices you could have factored.
Start a no-obligation reviewIndustry fit
Freight bills paid in 30 to 60 days are the classic factoring receivable; carriers use working capital loans for insurance renewals, tires and repairs that invoices cannot cover.
Weekly payroll against monthly client invoices is exactly what factoring solves; a working capital loan layered on payroll is the wrong shape for these businesses.
Progress invoices owed by general contractors factor well when retainage and lien rights are clear; contractors paid by homeowners lean toward working capital loans and lines.
No invoices, steady card volume: working capital loans and lines fit, factoring does not, unless the business also caters or wholesales on terms.
Qualification
Working capital lenders read the bank statements: six months in business, credit around 550, consistent daily or weekly deposits and few negative-balance days. Existing daily-payment obligations are the main reason for a decline, so the debt schedule matters as much as revenue.
Factors verify the invoice and the customer: a signed contract or purchase order, proof of delivery, the customer's payment history and a check that no other lender holds a lien on the receivables. Published guidelines put no minimum on time in business in many cases; concentrated customers, disputed invoices and existing UCC liens are the usual obstacles.
Using both
Holding both is common for B2B businesses: factor the invoices for the receivables gap and use a working capital loan for the costs that receivables do not cover. The factor generally needs a first lien on the invoices it buys, so if the loan lender files a blanket UCC lien, get the receivables carved out in writing before taking the second product.
Sequence the factoring facility first. Once it is open, individual invoices fund in a day or two and the working capital loan can be sized smaller and shorter, which lowers its cost; a loan taken first with a blanket lien can block the factor later.
Watch-outs
A nine-month loan to cover a 45-day receivable pays loan rates for seven months the business did not need. Factor the invoice instead.
A working capital product quoting 1.20 over nine months is far above 20% annually. Convert it before comparing with a factoring fee.
Factors limit exposure to any one customer. A business with one large client may get a smaller facility than its invoice volume suggests.
A working capital lender's blanket UCC lien can block factoring later. Check the liens on file before signing either product.
Next step
AIDBIZ reviews the request, identifies which of these products the file realistically fits, and starts without a hard credit pull. There is no obligation, and no product is guaranteed.
Common questions
Usually, when the business has factorable invoices: a fee of 1% to 5% per 30 days on one invoice is typically a fraction of a loan at 15% to 60% APR over months. Factoring does not apply to businesses without B2B invoices.
A working capital loan publishes one to two business days. Factoring publishes one to three business days after the initial setup, which can take a week; individual invoices fund quickly once the account is open.
In standard factoring, yes: the customer pays the factor directly. Some providers offer non-notification arrangements at a higher fee for businesses that prefer to keep the relationship private.
For factoring, the customer's credit matters more than yours. For a working capital loan, published guidelines start around 550 because deposit consistency carries the file.
Not for card sales. Restaurants that cater or wholesale on terms can factor those invoices; otherwise a working capital loan or a line of credit fits.
Under recourse factoring, the most common form, you repurchase the invoice or replace it. Non-recourse factoring shifts customer credit risk to the factor at a higher fee.
Yes, and B2B businesses often do: factoring for the receivables gap and a working capital loan for everything else, with the liens sorted out in writing.
Some factors and some working capital lenders report; many do not. Ask, because a well-managed facility that reports helps the next application.
Factoring scales with invoice volume and gets cheaper with volume; a working capital loan is sized to a share of monthly deposits and must be reapplied for each time.
AIDBIZ is a team of small-business funding specialists, not a lender. The amounts, rates, factor rates, fees, timelines and minimums on this page are published market guidelines compiled from lender and marketplace sources and are shown for comparison only. They are not offers; approval, cost, speed and amount depend on underwriting, verification and the terms of the specific funding partner. No hard credit pull is required to start a review.