Term loans: What you need to know, and the alternatives

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Term loans are a popular option for businesses in Ireland. They’re easy to understand — you borrow a certain amount, at a fixed interest rate, for a set length of time. 

However, you might face the following problems:

  • Frustration at the inflexibility of loans and how long it takes to extend your funding if your business needs change.
  • Issues getting the funding amount you need from your business bank at an interest rate you’re happy with. 
  • Waiting weeks for a decision on a loan application and potentially missing growth opportunities. 
  • You need to know in advance if you can get the funding you need to fulfil a contract you want to tender for.

This article will look at the providers offering business term loans in Ireland. We’ll then consider three alternatives that could be better for your company’s situation and needs: revenue-based finance, invoice discounting, and line of credit facilities. 

We’ll cover:

Reach out to us to discuss how we can fund your company with solutions that are much more flexible than a term loan. 

Term loans in Ireland: What options are available?

Your options for term loans in Ireland include: 

  • Banks: Term loans are available from the three main banks in Ireland:
    • Bank of Ireland: For loans up to €120,000, you can apply online and should hear back within 24 business hours, while loans over €120,000 can take longer to arrange. You can borrow up to €120,000 with an unsecured loan, with terms of up to 7 years.1
    • AIB: For loans up to €300,000, download the online application form and return it to your branch or relationship manager. For loans over €300,000, you’ll need to speak directly to your branch or relationship manager.²
    • PTSB: Download the application form online and take it to your local branch. Both short- and long-term loans are available, with terms of up to 10 years.³
  • Peer-to-peer lenders: A term loan from a traditional bank involves borrowing from a single, regulated financial institution under standardised terms. A term loan from a P2P lender involves borrowing from multiple individual investors through an online platform, often with more flexible terms and eligibility criteria. Some SMEs are offered lower interest rates with peer-to-peer loans. A well-known lender in Ireland is Linked Finance, who offer loans from €10,000 to €500,000 (that last up to 5 years).⁴

Term loan alternatives

With term loans, you borrow a fixed amount and pay off the loan in monthly installments, plus interest, based on your agreed repayment schedule.

While this arrangement may be suitable for personal loans, it can limit business growth due to the difficulty in quickly adjusting funding. However, other well-established options offer greater flexibility and an approach to finance more tailored to your business.

Here are three of these solutions, all of which we offer at Financefair: 

Revenue-based finance

Revenue based finance is a funding method that offers an advance on funds tied up in your monthly recurring revenue. It takes your regular monthly earnings and turns them into a funding source that you can use to grow your business. It’s a good option for companies that don’t have physical assets but have recurring contracts or non-contracted revenue, like subscription-based or SaaS businesses.

The main advantage of revenue-based finance over a term loan is the flexibility. With a term loan, lowering your repayments can be difficult. This can be challenging if your business experiences a cash flow pinch. Likewise, if your business does better than expected, you might want to increase your funding to make the most of growth opportunities.

With revenue based finance, we base your funding amount on your future projections. We review your funding regularly, meaning your repayments can decrease or increase as appropriate. Unlike with a loan, where you have a set amount to repay with fixed payments, revenue based financing adjusts to the peaks and troughs of your company’s revenue.

Here’s how it works: 

  • We review your projected income for the next 12 months.
  • This allows us to offer you up to 20% of your Annual Recurring Revenue (ARR) or up to 70% of the next quarter’s revenue
  • We can provide the funds monthly or quarterly and adapt them to fit your revenue growth.

Here are some scenarios where revenue based finance can work well:

  • You don’t have blue-chip debtors, but your recurring revenue is stable.
  • You’re scaling your company.
  • You want to manage your working capital more effectively and stop operating month to month.
  • You have some contracts ongoing, but you want access to extra cash to tender for new contracts.
  • You’re considering raising equity in the future. Revenue based finance can also be used alongside VCs and other types of investors.

In Ireland, revenue based finance is only available from Financefair. To be eligible, your company needs:

  • To be a limited company with at least two directors
  • To have been trading for at least one year
  • A minimum turnover of €1 million

For more details, read our article: Revenue based financing: What it is and how to get started

Invoice discounting

Invoice discounting, also known as invoice financing, allows businesses to access cash by using their existing customer invoices to fund new contracts. It’s a convenient way to unlock funding without committing long-term to a loan.

There are two types of invoice discounting: selective and full book.

Selective invoice financing lets you choose which invoices to finance. This means you can select your largest, most significant invoices without raising invoices with much smaller sums. Selective can be a good option for smaller companies with only a few larger contracts (and many smaller ones). We are the only provider of selective invoice finance in Ireland.

With full book invoice discounting, you finance all of your invoices, which is slightly cheaper but can be more operationally intensive. Full book works well for businesses with larger teams and the resources to manage it.

Depending on the provider, you may be able to choose between disclosed (also known as non-confidential) or undisclosed (also known as confidential) invoice discounting. With a disclosed facility, your customers know you’re using invoice discounting. Invoice factoring is a common type of disclosed invoice finance where the funding provider effectively takes over your credit control. 

With undisclosed invoice financing, your customers won’t know you’re using invoice discounting. You’ll be in charge of sending invoices and collecting payments as usual.

Here’s how invoice discounting works:

  1. You create an invoice.
  2. The provider gives you a pre-agreed advance, usually a percentage of the total invoice value (for example, up to 90%).
  3. Your customer pays the invoice amount to an account managed by the provider. If the facility is undisclosed, your customer assumes they’re paying you, but if it’s disclosed, they’ll know they’re paying a third party.
  4. The provider then sends you the invoice balance minus any fees.

In Ireland, there are several providers offering invoice discounting:

  1. Financefair: Choose either selective or full book invoice discounting and get an advance of up to 90% of the invoice value. You can apply for and manage your facility online, and once it’s approved, we’ll deposit funds into your account within 24 hours. To estimate the cost of invoice discounting, try our calculator. Our eligibility criteria requires that you:  
    1. Are a limited company with at least two directors 
    2. Have a trading history of at least three years
    3. Have a minimum annual turnover of €3 million
    4. Maintain an average debtor book of at least €500,000
  2. AIB: Full book invoice discounting that you can manage online, with an advance of up to 85% of the invoice value.
  3. Bank of Ireland: Full book invoice discounting, typically for invoices that have been outstanding for up to 90 days. Provides an advance of up to 85% of the invoice value.⁶
  4. Close Brothers: Invoice factoring and full book invoice discounting, with an advance of up to 90% of the invoice value.
  5. Bibby: Invoice factoring and full book invoice discounting that you can manage online.

These providers may offer disclosed and undisclosed options based on your company’s perceived risk. Banks usually offer disclosed facilities, but all of Financefair’s invoice financing is undisclosed.

For more information about invoice discounting, read our article: Invoice discounting: How to get started

Line of credit

A line of credit is a type of financing that works similarly to a digital overdraft. It allows you to quickly access working capital whenever you need it, while only paying for what you use. 

A line of credit gives your business lots of flexibility. For instance, you might need to place a large order of stock to fulfil a new contract or to make the most of a bulk-order discount. Line of credit can help you make the most of these opportunities. 

Line of credit providers, like Financefair, can often offer businesses more funding than a traditional overdraft – up to €250,000 per 12-month period in our case. Additionally, these credit lines are more flexible than bank overdrafts. If you have a bank overdraft or loan, increasing your funding requires a new application, but with a line of credit, it’s easier to arrange a funding extension.

Once we’ve set your facility up, accessing the funds is simple. Unlike with invoice financing, you don’t need to redirect customer payments to a separate account. When you need to access funds, we’ll deposit them into your bank account via a bank transfer.

A line of credit might be the right choice for your business if you:

  • Need quick access to a flexible cashflow for a milestone or project.
  • Prefer a flexible funding option without a long-term commitment. 
  • Don’t want to divert incoming payments to another bank account.
  • Need funding fast and don’t have time to wait for the decision on a small business loan application.

AIB is currently the only Irish bank offering line of credit facility to current account customers. Financefair is the only provider offering it as a standalone option. To qualify for our line of credit facility, you must: 

  • Primarily operate as B2B.
  • Have a debtor book – but your clients don’t need to be blue chip.
  • Connect your financial software with our platform.
  • Fit the other rating criteria we look at. This includes your business credit score, history and creditworthiness, and business performance.

Why choose Financefair?

Established in 2015 by industry professionals, Financefair is an alternative lending platform that provides customised working capital solutions to Irish businesses. Previously known as InvoiceFair, our focus is offering businesses the funding they need to grow.

To do this, we offer business line of credit facilities, selective invoice finance, full book and selective invoice discounting, and revenue based financing

Here’s why you should consider working with Financefair to grow your business:

Get business funding plus the flexibility to switch solutions if you need to 

The financing we offer at Financefair offers more flexibility than a fixed-term loan: you’re not stuck waiting until your loan ends before you can apply for a higher (or lower) loan amount. Also, you can have a business finance solution with Financefair and a traditional loan from your business bank. 

When you reach out to us, we’ll assess your current funding needs and discuss where you see your business going in the long run. From there, we can determine which funding solution might be the best fit for you. 

Because we know how important flexibility is, we make switching to another funding solution easy if your needs change. As the only provider in Ireland that provides revenue based finance and a standalone line of credit, we can provide you with a wide range of options that other providers can’t – all on one easy-to-use platform. 

Here’s what else you should know about our financing products:

  • The business owner doesn’t have to give a personal guarantee: Term loans usually always require some kind of personal guarantee. Financefair never requires a personal guarantee: so your home and other personal assets aren’t at risk. 
  • Our pricing is transparent: No hidden fees will crop up later on. You’ll know from the outset exactly what the cost is. 
  • You don’t need blue-chip debtors to get funding from Financefair: If your business has a subscription or recurring revenue model, securing funding from a bank can be difficult. 

Find out in one business day if we can fund your business.

One of the problems with term loans is how long it can take to find out if the bank has accepted your application. We know how important it is to be able to move fast if a business opportunity comes your way. For that reason, we ensure your indicative offer is with you in one business day

If you decide to accept our offer, you’ll need to complete some paperwork, and we’ll then set you up on the Financefair platform. When that’s all sorted, you can access your funding within 24 hours. To ensure we can move quickly, we use a combination of data analytics and a knowledgeable team with decades of industry experience. 

Benefit from decades of financial services experience 

When your facility is up and running, we’ll still be on hand if you want to discuss your funding, particularly if things change and you think another solution may suit your business better. We’ll speak to you directly to make sure we have a good understanding of which funding solution might best suit which situation. 

For example, we’ve seen that e-commerce businesses wanting to scale can do so more effectively with revenue based finance. Because revenue based financing is a more flexible option, it allows businesses to get hold of the funds they need faster. This lets them move more quickly than they might be able to if they had a loan and needed to secure more funding. 

Scale your company with frictionless, flexible funding from Financefair

In this article, we’ve looked at the options for term loans in Ireland, along with some of the most popular banks and peer-to-peer providers. 

We’ve also pointed out the limitations of term loans: namely, the lack of flexibility and ability to adapt as your business grows.

At Financefair, we offer innovative, more flexible funding alternatives that can grow with your business: revenue based financing, line of credit, and invoice discounting. 

If one of those solutions sounds like it might work well for your company, get in touch with the team today to find out more. 

Sources

¹https://businessbanking.bankofireland.com/credit/business-loans/business-loan/
²https://aib.ie/business/loans-and-finance/loans-up-to-60k
https://aib.ie/business/loans-and-finance/loans-from-60001-300k
³
https://www.ptsb.ie/business-banking/term-loans/
⁴https://www.linkedfinance.com/business-financing/
https://www.linkedfinance.com/borrower-faqs/
⁵https://aib.ie/business/loans-and-finance/finance/invoice-finance
https://businessbanking.bankofireland.com/credit/finance/invoice-finance/how-does-it-work/
https://www.closeinvoice.co.uk/invoice-discounting
⁸https://www.bibbyfinancialservices.com/funding/invoice-finance-products
https://www.bibbyfinancialservices.com/funding/invoice-finance-products/invoice-discounting

 

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