There are many factoring uses in today’s market for both small and large businesses. With cash flow a key to survival and growth, here are some factoring pros to keep in mind when comparing to traditional bank loans.
If you are just starting out, it is unlikely a bank will have any interest in working with you. Oftentimes their collateral requirements are just not manageable for a start up company. Since Factors look to the payer of the invoice, this helps new companies get funding.
A bank will look for the company to have steady growth and stability. They are not real fond of peaks and valleys on the books. The reality is that some businesses operate in a seasonal market. A factoring company understands this whereas a bank most likely will not.
Banks rarely consider lending to any company with a prior bankruptcy or judgment. Since the strength of buying an invoice is directly related to the customer’s credit (not the company selling the invoices) a Factor will still be interested.
Factoring uses common sense underwriting, looking at each deal on its own. Bank lending oftentimes has a multitude of variables that really have nothing to do with the deal on the table. They ask questions like “Do you have a proven track record?”and “Are the liquid assets sufficient to cover any loses?”
Banks typically have considerable ongoing fees associated with the initial start up. They are certainly in tune with charging money to lend you money.
Although accounts receivable financing also has a factoring cost, there are plenty of factoring strategies that can help a company recoup most, if not all, of the costs.
The next time someone say’s you’re “not bankable,” consider the advantages of factoring. It might just be your only option and your best one as well!