Why Small Businesses Are Turning To Factoring For Working Capital
Obtaining a bank or SBA loan can be a long, hard process if you are the average business owner. Be it the long time required to go thru their approval process, the stringent credit requirements or amount of the down payment needed to obtain these loans. Most business find traditional methods of obtaining financing a long tedious ordeal that may not bear any fruit.
Why is factoring becoming so popular
Factoring means using your accounts receivables as a basis of obtaining working capital for your business. Factoring got a bad reputation a few years ago because it was a more expensive form of financing. At that time, unsecured business loans were easy to obtain if you had good credit. We had a business line of credit up to $50,000 that just required a 680 credit score! But those days are over. And working with traditional banks has become increasingly difficult.
Here are the benefits of factoring:
- Fast funding. It takes 3 – 5 days to initially set up your business with a factor, but once you have been set up it will only take 24 – 48 hours to get financing each time you need it.
- Flexible terms. You can factor as much or as little as you like. You can factor monthly or just when you need the extra cash flow
- Its approval isn’t based on the business owners credit or financial strength. Its based on the strength of your customers invoices.
- It provides financing for large orders that the business owner would have to turn down otherwise
- Not a loan, you don’t have to pay it back. The factoring company will collect on the invoices and thus be paid
- cuts down on your management and collection cost. The factoring company takes over the collection of the invoices. If you go with a non-recourse factor, you won’t be responsible if your client doesn’t pay.
Not all Factoring services are alike
Most factoring companies will off er you up to 80% of the value of the invoices you submit. But there are some that will lend up to 95%! But keep in mind the more money they will lend against your invoices the higher the quality of your client must be.
Once your customer pays the invoice, you will the balance of the invoice minus the fee charged by the factoring company. On the other hand, if your customer fails to pay on time, your lender may keep all or a portion of the remaining balance of your invoices as a penalty.
Are you interested in factoring your invoices? Give us a call (1-888-308-7160) or fill out our short factoring info form and a consultant will contact you as soon as possible.
Irish Taylor is a business loan consultant with Startup Business Loans and has been providing consumers and business owners with startup business financing since 1992. For years she has helped people with credit and loan problems especially pertaining to business start up, SBA loans and Unsecured loans.