Business loans, credit lines, invoice financing and inventory financing – a comprehensive guide to business financing

A clear guide to business loans, credit limits, invoice financing and inventory financing. Learn which business financing solution best suits your company.

Business loan – the most traditional form of business financing

A business loan is the most well-known and straightforward way to finance a company. It is a loan granted by a bank or another financier, which the company repays according to an agreed schedule with interest. The principle is similar to a personal loan, but the borrower is a business.

What can a business loan be used for?
Business loans can be used for purposes such as acquiring machinery and vehicles, renovating business premises, expanding operations or making other investments. The key benefit is predictability: you know exactly how much you will repay and over what period.

The advantage is clarity, but the challenge is that the loan must be repaid even if the business does not perform as planned. That is why it is important to realistically assess repayment capacity before applying for a loan.

Business credit line – flexible financing for everyday needs

A business credit line is a flexible financing solution that works much like a credit card for a company. A credit account is opened, from which funds can be drawn as needed. Interest is charged only on the amount used, not on the entire credit limit.

Example: A restaurant needs to purchase additional raw materials for the busy season, but customer payments are delayed. A credit line allows invoices to be paid on time, and the balance is repaid once customer payments are received.

The main strength of a credit line is its flexibility in smoothing cash flow. The downside is that if the limit is used continuously without repayment, costs can increase quickly.

Invoice financing – a solution for long payment terms

In many industries, invoice payment terms of 30–90 days are common, which can create cash flow pressure. Invoice financing solves this issue by allowing the company to sell its invoices to a financing company and receive most of the invoice amount immediately.

Example: A construction company issues an invoice of €50,000 with a 60-day payment term. With invoice financing, the company can receive €45,000 immediately, enabling it to pay wages and material costs on time.

Benefits of invoice financing:

• improves cash flow
• reduces the risk of cash shortages
• transfers part of the credit risk to the financier

While the service involves costs, for many companies the benefits clearly outweigh them.

Inventory financing – funding for growth and seasonal demand

Inventory financing is designed for situations where a company needs to purchase large volumes of products before they are sold. It is particularly suitable for companies in retail and industry.

Example: A clothing store prepares for the Christmas season by ordering winter jackets worth €100,000. With inventory financing, the store can make the purchase on time and serve customers when demand increases.

The advantage of inventory financing is that it enables growth without placing excessive strain on the company’s own cash flow. The risk, however, is that products may not sell as expected, which makes demand forecasting essential.

Business loan, credit limit, invoice financing or inventory financing – which is right for you?

When considering business financing, start by asking:

• Do I need financing for a long-term investment or to cover a short-term cash gap?
• Do I value predictability or flexibility?
• Business loan is suitable for large, long-term investments.
• A business credit line toimii joustavana puskurina arkeen.
• Invoice financing works as a flexible buffer for daily operations.
• Inventory financing supports growth and seasonal preparation.

Companies should always compare financing options and calculate total costs, as interest rates, service fees and other charges can vary significantly between financiers.

Common mistakes in business financing

1. Overly optimistic cash flow forecasts - funds do not return as quickly as expected.
2. Using the wrong tool - taking a loan to cover cash flow gaps when a credit line would be more suitable.
3. Underestimating costs - even small interest rates and service fees can add up.

Avoid these mistakes by making realistic calculations and requesting offers from multiple financiers.

Frequently asked questions about business financing

Can a company have more than one financing solution at the same time?
Yes. It is common for companies to have both a business loan and a credit line.

Is financing always debt?
Yes, but when used correctly, it is a tool to support growth rather than just an expense.

Can small businesses obtain financing?
Yes. Collateral or personal guarantees may be required, but unsecured options are also available.

Summary – business financing is a tool for growth

Business loans, credit lines, invoice financing and inventory financing are different solutions, each with its own role in managing company finances. When chosen carefully, financing is not just a cost, but a resource that supports growth, improves cash flow and helps seize new opportunities.

👉 Remember: Don’t rush the decision. Compare options, calculate costs and choose the solution that best fits your company’s situation.