Can a Company Use Accounts Receivable Funding If It Already Has a Bank Line of Credit or Tax Liens?

factoring-questionMany times a company thinks if they have an existing bank loan or line of credit they will not qualify to sell their receivables.

In some cases a company may still be eligible to work with a full-service factor and realize the benefits of factoring.

For starters, oftentimes banks may not have used the current receivables as collateral. If there is no lien on the receivables being factored than a company is free to sell them as the owner sees fit.

Secondly, depending on the situation, if the bank does have a lien oftentimes they are willing to subordinate once the bank understands the situation.

The other alternative is to pay off the existing loan. This requires enough receivables to leverage the buy out, but it may be an option.

Believe it or not, many referrals actually come from loan officers that were unable to provide additional help to their banking clients. Many lenders are very familiar with ‘interim factoring” and welcome the help.

Tax liens work in much the same way as working with a bank. They are handled on a case-by-case basis.   Remember the government wants to get paid as well. They have been known to subordinate their position to help improve their chances of receiving payments on back taxes.

Having a bank loan, line of credit, or tax lien may not exclude you from the benefits, and financial freedom, of utilizing a full service factor. Just be sure to mention the situation upfront when making application to factor accounts receivable.   This will help set the stage for good working relationships and avoid delays or confusion during the due diligence process.

Comments

  1. Good suggestions. Particularly about making sure there are no encumbrances. Factoring can be used to help owners reduce the amount of capital they have committed to their businesses. Helpful in reducing the selling price when they go to sell. Particularly when purchase financing may be more difficult to obtain, in the right amount.

  2. Great information Martin! Thanks for the input!

    Fred

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