Businesses that don’t qualify for traditional bank loans often turn to alternative forms of financing such as asset-based lending or invoice factoring. If you are considering pursuing either of these options, it’s important to understand the differences between them.

An asset-based loan is one in which you put up a piece of equipment your business owns as collateral in case you default on the loan. Invoice factoring is a means of gaining access to immediate cash by selling outstanding invoices to a factoring company that takes over collecting the face value. You do not receive the full face value during the transaction since the factoring company holds some of it back to cover its fees.

Approval Time Expectations

If you’re in a hurry for funds, you may want to consider invoice factoring over asset-based lending. The reason for this is that a factoring company typically only needs to confirm the value of the outstanding invoices you need to sell. When using a business asset as collateral, the lender must complete an audit that can take several days.

Privacy Concerns

If you choose to work with a factoring company, it will need to verify your accounts by contacting your customers directly. This lets your customers in on the fact that you are selling their outstanding invoices to a factoring company. While this may not bother you, some business owners are more private about finances and would prefer not to make this common knowledge.

With asset-based financing, little to no interaction takes place between your customers and the lender. That means they usually don’t know how you intend to fund transactions that concern them.


You may end up paying more to obtain a loan via invoice factoring since most companies charge interest every 30 days. Lenders dealing with asset-based loans typically charge an annual percentage rate that ranges between seven and 15 percent. On the other hand, you may have no assets to pledge as collateral if you have recently launched a start-up business.

A representative from Goldendale Capital is happy to meet with you to help you evaluate these and other business financing options.