Businesses choose invoice factoring or accounts receivable financing for many reasons, one being that it’s an efficient way to secure good cash flow. There are many different advantages to using factoring instead of a traditional bank loan. However, it’s important to research and consider the differences between the two to make sure the business chooses the best option for its needs.
Factoring doesn’t leave you with any debt.
There a few major differences between these two options. One of them is that a business can get funds from a factoring company without any debt. Additionally, the money received from factoring can change as a company’s receivables increase. A traditional bank loan is a debt that comes along with principal and interest. A traditional loan will have a limit and typically won’t change unless the business takes out a second loan.
Qualifying for factoring vs. a bank loan.
Another reason businesses turn to factoring is because of the application process. It’s very possible to work with a factor if your business has less than great credit. Applying for a more traditional loan in this situation, however, doesn’t tend to work out in the business’s favor. They have to show that they possess solid financials, adequate assets, and low liability to qualify. These requirements are especially difficult to meet for new businesses. Factoring qualifications mostly depends on the creditworthiness of the business’s clients, while bank loans depend on the credit history of the business applying.
Factoring funds your business much faster.
Even though businesses have to wait a substantial amount of time to qualify for a bank loan (then wait even longer for the funds), it can be an option for new businesses to build their credit. However, when time is a of the essence in funding needs, factoring companies become an great option. The total process of applying, qualifying, and receiving funds takes typically 1-3 days. For a business that needs quick cash, working with factoring companies is their best funding option.
Extra Services with Accounts Receivable Funding
It’s a good idea to consider the added services available through companies that provide accounts receivable financing. Not only will factoring companies provide back office services like the collections of your accounts receivable, but some companies also provide data on customers that can help with future marketing and sales initiatives.
Investigating All Options
Deciding which option suits your business the best takes some research, as well as some consideration of the different benefits of both. If you think factoring suits your needs the best, contact us today for more information and to start funding your business.