When should a business use a term loan?

Use a term loan when you need a defined lump sum for projects like expansion, hiring, marketing, stock, or consolidating short-term borrowing. It offers predictable monthly repayments aligned to a fixed term.

When is asset finance the better choice?

Choose asset finance when acquiring or refinancing productive assets such as machinery, vehicles, or technology. It spreads the cost over the asset’s useful life and typically uses the asset as collateral.

Who benefits most from invoice finance?

B2B firms that offer credit terms to customers—such as manufacturers, wholesalers, logistics companies, and staffing agencies—often benefit from invoice finance because it accelerates cash inflows tied up in receivables.

Does Best Business Loans provide finance directly?

No. Best Business Loans is an independent introducer. We use AI-driven matching and a UK network of lenders and brokers to introduce you to relevant funding providers. We do not lend or provide regulated financial advice.

What’s the difference between a term loan, asset finance and invoice finance?

Q: What is the difference between a term loan, asset finance and invoice finance?

A term loan is a fixed-amount loan repaid over a set period for general business use. Asset finance funds the purchase or refinance of equipment or vehicles, with the asset often serving as security. Invoice finance advances cash against your unpaid B2B invoices to improve working capital.

The quick answer and core differences

A term loan gives you a lump sum for general business purposes, repaid over a fixed period with interest. Asset finance helps you acquire or refinance equipment and vehicles, with the asset itself often acting as security. Invoice finance releases cash against unpaid customer invoices to improve working capital, typically on a revolving basis.

Put simply, term loans fund your business overall, asset finance funds specific assets, and invoice finance funds your sales ledger. The best option depends on your purpose, cash flow profile, available security, and how quickly you need funds. Many established UK SMEs use a mix of these products at different stages of growth.

One-sentence definitions

Term loan: Fixed-amount borrowing repaid in instalments over an agreed term, often unsecured or supported by guarantees.

Asset finance: Funding to acquire or refinance equipment or vehicles, spread over the asset’s useful life with the asset as collateral.

Invoice finance: An advance against outstanding B2B invoices, providing immediate cash while the debtor pays in normal terms.

How they differ at a glance

Feature	Term Loan	Asset Finance	Invoice Finance
Primary purpose	General growth or cash flow	Purchase or refinance assets	Unlock cash from invoices
Security	Unsecured or PGs; sometimes debentures	Asset-backed (the equipment/vehicle)	Debtor book as collateral
Repayment	Fixed monthly instalments	Fixed rentals/instalments, often aligned to use	Revolving advances, repaid as invoices settle
Cash flow impact	Regular fixed outflows	Spreads cost; preserves working capital	Accelerates cash inflows
Speed to funding	Fast once approved	Fast for common assets; longer if bespoke	Fast after setup; ongoing drawdowns
Best for	Growth, projects, consolidation	Equipment, vehicles, machinery	B2B firms on credit terms

Important context

Rates, fees, and eligibility vary by provider, industry, and credit profile. Approval depends on lender assessment and may require guarantees or security.

Best Business Loans is an independent introducer that helps you compare options and connect with suitable UK lenders and brokers. We don’t provide loans directly or offer regulated advice.

When each option makes most sense

When a term loan is suitable

Choose a term loan when you need a defined lump sum for a specific project or general corporate purposes. Common uses include expansion, hiring, marketing, stock purchases, or refinancing existing short-term debt. Predictable monthly repayments make budgeting simpler, which suits stable trading businesses.

When asset finance is suitable

Opt for asset finance when you’re acquiring equipment or vehicles and want to preserve working capital. The funding is closely tied to the useful life of the asset, aligning cost with value-in-use. This is popular in manufacturing, construction, logistics, agriculture, printing, and healthcare.

When invoice finance is suitable

Invoice finance can help if slow-paying customers create cash flow gaps that constrain growth. It’s designed for B2B firms that issue invoices with credit terms, such as wholesalers, manufacturers, staffing agencies, transport providers, and professional services. You can often choose between invoice discounting (you manage collections) and factoring (the provider may manage collections).

Practical decision framework

If you need funds for “things” like vehicles or machines, consider asset finance first. If you need funds for “time” while you wait to get paid, consider invoice finance. If you need funds for “plans” like projects or general growth, a term loan can be appropriate.

Combining products

Many SMEs combine facilities to match different needs over time. For example, use asset finance for a new CNC machine, invoice finance to smooth working capital, and a term loan to fund a marketing push.

If you’re weighing options for a smaller trading business, see our guide to small business loans for additional context.

Costs, terms, security and risks compared

Costs you may encounter

Term loans: Interest, arrangement fees, and sometimes early repayment charges.
Asset finance: Rental or interest costs, documentation fees, and potential end-of-term options or fees.
Invoice finance: Service fees and discount charges on funds drawn, plus potential audit or refactoring fees.

Exact pricing depends on factors like turnover, profitability, credit history, sector, asset quality, and strength of the debtor book. Lenders will also consider security coverage and directors’ guarantees where relevant.

Security and guarantees

Term loans may be unsecured, but personal guarantees and debentures are common in SME lending. Asset finance is typically secured against the funded asset, with title conditional on agreement type. Invoice finance is secured on receivables, and providers review debtor concentrations and disputes risk.

Terms and repayment profiles

Term loans often run 1–6 years, with fixed repayments aligned to your forecast cash flow. Asset finance terms usually reflect the asset’s life, commonly 2–7 years for vehicles and equipment. Invoice finance is ongoing, with funds revolving as you raise invoices and your customers pay down balances.

Cash flow impact

Term loans create fixed outflows, which aids predictability but requires headroom. Asset finance spreads the cost of productive assets, which can be cash-flow friendly when assets generate income. Invoice finance speeds cash conversion, reducing the gap between issuing an invoice and having cash in the bank.

Risks and considerations

Overborrowing: Ensure repayments remain affordable under conservative forecasts.
Covenants: Some facilities may include covenants; breaching them can trigger reviews.
Customer experience: In factoring, communication with your customers may be visible; ensure the process fits your brand.
Asset depreciation: For asset finance, consider asset obsolescence and maintenance.
Contract terms: Understand notice periods, termination costs, and early settlement mechanics.

How approvals work, what lenders assess, and how we help

What lenders look for

Term loans: Trading history, profit and loss, balance sheet strength, cash flow forecasts, management track record, and existing debt.
Asset finance: Asset type, age, residual value, supplier reputation, affordability, and maintenance considerations.
Invoice finance: Aged debtor report, concentrations, disputes, credit insurance, contractual terms, and debtor quality.

Across all products, lenders assess affordability, credit behaviour, and the purpose of funds. Security positions and personal guarantees can influence outcomes, especially for SMEs.

Typical documents requested

Statutory accounts and recent management accounts.
Bank statements, VAT returns, and a debtor/creditor list.
For assets: supplier quote, asset specs, and invoice.
For invoices: sample invoices, contracts, and aged debtor analysis.

Approval speed varies with deal complexity, sector, and completeness of documentation. Simpler asset finance and invoice finance facilities can complete quickly once the fundamentals are in place.

Indicative timelines

Term loans can be quick for straightforward cases, but bespoke underwriting may extend timelines. Asset finance can progress rapidly for standard vehicles and equipment, with longer lead times for niche or used assets. Invoice finance requires initial setup, then drawdowns on approved invoices are usually fast.

How Best Business Loans supports your journey

We help you assess which route may fit your objectives and cash flow. Our AI-driven platform introduces you to relevant UK lenders and brokers based on your profile and sector. You remain in control while saving time compared with contacting dozens of providers.

We don’t lend money or provide regulated financial advice. Any eligibility decisions, rates, and terms are set by the provider you choose.

Get your free Quick Quote to see which options and partners may suit your business.

FAQs, examples, and next steps

Is invoice finance the same as factoring?

Factoring is a type of invoice finance in which the provider may manage collections and contact your customers. Invoice discounting is another approach where you retain control of collections and customer relationships. Both release cash against invoices but differ in visibility and administration.

Does asset finance always require a deposit?

Not always, but many providers prefer a contribution, particularly for certain asset classes. The deposit level can influence monthly rentals and approval. Terms depend on asset quality, business profile, and lender appetite.

Will a term loan be unsecured?

Some SME term loans are unsecured, typically supported by personal guarantees. Larger facilities may include debentures or specific charges. Security requirements vary by lender, loan size, and risk assessment.

How quickly can I access funds?

Speed depends on the product and completeness of your information. Asset finance and invoice finance can be fast after onboarding, with drawdowns available on approved assets or invoices. Term loans can also be quick, but underwriting varies by provider.

Real-world examples

Manufacturing: Asset finance for a new press line, plus invoice finance to smooth 60-day terms with major retailers.
Construction: Asset finance for plant and vehicles, with a term loan for office refurbishment and software upgrades.
Logistics: Invoice finance to bridge customer payment cycles, combined with asset finance for fleet expansion.

Best Business Loans connects you with providers actively lending in your sector, helping you compare the pros and cons for your situation. It’s free to submit your details, and there’s no obligation to proceed.

Important: All information on this page is for general guidance only and does not constitute financial advice. Eligibility, fees, and rates are subject to provider assessment and may change.

Key takeaways

Term loan: fixed sum, fixed term, general purposes, predictable repayments.
Asset finance: funds equipment/vehicles, asset-backed, preserves working capital.
Invoice finance: accelerates cash from invoices, ideal for B2B credit terms.
Right choice depends on purpose, security, cash flow, and speed to funds.
We introduce you to suitable UK lenders and brokers to explore your options.

Next steps

Tell us what you need funding for and your typical cash flow cycle. Our AI-driven platform will match you with appropriate providers for a no-obligation conversation. Start your Quick Quote and compare term loans, asset finance, and invoice finance in one place.

Compliance and transparency notice

Best Business Loans operates as an independent introducer and does not provide loans or regulated financial advice. We aim for content and introductions that are clear, fair and not misleading in line with FCA guidance and UK advertising standards.

You should consider independent professional advice before entering any agreement. Information is general and may not reflect your specific circumstances.

Updated: October 2025.